‘84 After-Tax Personal Income Rises 6.8% for Best Gain in 20 Years

Americans’ income, after subtracting taxes and inflation, rose a strong 6.8% last year, the biggest increase in two decades, the government said Friday, leading analysts to boost their earlier estimates of the nation’s economic growth rate.

The Commerce Department said the increase in disposable income--the amount of money available after paying taxes--almost doubled the 3.5% gain in 1983 and was the largest since a 7.1% rise in 1964.

Americans not only had more disposable income in 1984, but they chose to spend more of it. Consumer spending, after discounting inflation, rose 5.3%, the best showing in eight years.

Since consumer spending makes up two-thirds of the overall economy, the surge was a key factor in keeping the recovery going last year, analysts said.

They credited the big gains in disposable income to hefty increases in employment and the final phase of the Reagan Administration tax cuts, which gave Americans more money to spend. Also helping was the continuing low inflation rate.

‘Extraordinary Year’

Before taking out the effects of inflation, personal incomes rose 9.8% in 1984, the best increase since a 12.2% rise in 1981 when the inflation rate was much higher. Personal incomes before discounting inflation were up 6.2% in 1983.

“Last year was an extraordinary year in terms of good performance in real income and sustained low inflation,” said Allen Sinai, chief economist for Shearson Lehman/American Express.

Sinai and other economists noted that 1984 also ended on a strong note, providing momentum which should ensure continued growth into 1985.

For December, the report said personal incomes rose 0.5% and personal consumer spending was up an even stronger 1.2% following a 1% November gain.

Overall growth, as measured by the gross national product, climbed at a rate of 8.6% from January through June but slumped to an anemic 1.8% from July through September.

Analysts said the big increases in spending and incomes could boost growth to 3% for the final three months of 1984, up from an earlier estimate of 2.8%, and could provide the basis for an expansion rate as high as 5% for the first half of 1985, about 2 percentage points more than analysts had been expecting before the December report.

“Rather than falling out of the sky, the economy was soaring higher than ever at the end of 1984,” said Jack Albertine, president of the American Business Conference, a coalition of high-growth companies. “The personal income statistics show that 1984 was a year of remarkable economic progress.”

At the White House, presidential spokesman Larry Speakes said the latest figures provided “considerable promise for 1985.”

Wages and salaries increased $18.3 billion in December, up sharply from the $13.8 billion November gain.

The department said farm proprietors’ income increased $700 million in December, down from a $1.1 billion increase in November. But for all of 1984, farm proprietors showed the largest income gain of any group, jumping 105.5%.

Government analysts said this gain came about because of increased crop production last year and subsidy payments to farmers under the Administration’s payment-in-kind program. The gain also looked large, analysts said, because farm income had dropped 36.9% in 1983 due to drought and other declines in production.

After discounting inflation, the 6.8% gain in disposable income for the year was the best in two decades. The department had originally reported a matching 6.8% gain in 1973 but later revised that increase to 6.7% following a recalculation of the raw figures.

Personal savings in December dipped to an annual rate of $150.5 billion in December. That left the national savings rate--savings as a percentage of disposable personal income--at 5.7%, down from 6.4% in November.