Personal spending up, but incomes, construction and manufacturing show weakness
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Personal spending is on the rise, but weakness in incomes, construction and manufacturing suggests that the economic recovery will continue to be sluggish.
Nominal personal income inched up $11.4 billion, or 0.1%, in January after growing 0.3% in December. Though incomes have risen for the last six months, the increase was among the smallest.
Throughout all of 2009, incomes fell 1.7%, following a 2.9% boost in 2008, according to the Bureau of Economic Analysis. For the first time in more than three decades, Social Security recipients did not get a cost-of-living adjustment in January.
But private wages and salaries soared $16.1 billion, compared with a $2.3-billion climb in December. Government wages and salaries were up $6.1 billion.
Personal spending jumped $52.4 billion, or 0.5%, in January, according to the U.S. Department of Commerce agency. Spending, which makes up the vast majority of total economic activity, climbed 0.3% in December.
But consumers are saving less – the personal savings rate fell to 3.3% in January, from 4.2% in December, the lowest percentage since the 2.9% marked in October 2008. The amount saved dropped to $367.2 billion, from $467.9 billion.
Real disposable income, adjusted to remove price changes, suffered the largest tumble in seven months.
After taxes and inflation, the measure fell 0.6% in January after rising 0.2% the month before.
A key inflation gauge showed little movement. The core price index for personal consumption expenditures without volatile food and energy prices rose less than 0.1% in January. With food and energy, the index increased just 0.2%.
“Lower income growth and lower saving rate suggest that consumers will be more cautious in the months ahead, keeping a lid on consumer confidence and discretionary spending,” several economists wrote in a research note from PNC Financial Services.
Construction continued several months of dips, sliding 0.6% in January to a seasonally adjusted annual rate of $884.1 billion, according to another report from the Commerce Department, this time through the Census Bureau. The number is 9.3% below the $975.3 billion recorded in January 2009.
Spending on residential projects was up 1.1%, to $269.1 billion, in January, but still lagging 6% from the $286.4 billion spent the previous January. Single-family home construction fell for the first time in eight months.
Nonresidential construction fell 1.4% in January and 10.6% compared with a year prior, with spending down for hotels, office buildings, hospitals and a slew of other sectors.
“The outlook for private nonresidential construction over the next two years is grim due to overbuilding, the collapse of the securitization market, tight credit, plunging real estate prices, rising vacancy rates and rising unemployment,” wrote Patrick Newport, U.S. economist for IHS Global Insight, in a research note.
The private sector allotted $577.3 billion for construction in January, down 0.6% from December. Spending from the public sector dropped 0.7% to $306.9 billion in the sixth consecutive fall.
Manufacturing continued its seventh consecutive expansion, but the index measuring the industry’s growth dropped to 56.5 in February, from 58.4 in January, according to the Institute for Supply Management.
Any level over 50 indicates growth, the nonprofit group said. Of the 18 manufacturing industries measured, 11 were growing in February, including machinery, paper products and apparel.
More companies appear to be hiring, pushing the employment index up to 56.1, from 53.3, the third straight boost. But new orders fell to 59.5, from 65.9, and production slipped to 58.4, from 66.2.
-- Tiffany Hsu
