Rise in Income, Spending Draw Note of Caution

Americans’ personal income rose in November at the fastest clip in seven months, while consumer spending rebounded from a steep plunge the month before, the Commerce Department reported Monday.

Many economists said the 0.6% income gain was a good sign, but they cautioned that much of the 0.9% jump in spending was simply a rebound from a giant slide the month before.

And most analysts said the new figures did not alter their basic belief that consumer spending is likely to be sluggish in coming months because of record-high burdens of consumer debt and a low savings rate.

People ‘Deep in Debt’

“We still have problems. People are still deep in debt and the savings rate is quite low,” said Sandra Shaber, consumer economist for Chase Econometrics. “There is no evidence in any of this data that the growth rate should improve measurably next year.”

She predicted that the overall economy would grow at a sluggish rate of between 2% and 2.5% in the first half of 1986.

“Consumer spending won’t be dragging the economy down, but neither is it going to fuel stronger growth the way it did in the early stages of the recovery,” she said.

David Wyss, an economist with Data Resources Inc., said that even with the big rise in spending for November, reports on Christmas sales have not been encouraging.

“The consumer is going to have to pause for a while and let his income catch up with his spending,” he said. “The early reports for Christmas have been pessimistic. We are not getting the surge in sales that retailers had hoped for.”

The Commerce Department report said the income gain was the strongest since a 0.9% rise in April.

Wages and salaries rose by $6.5 billion in November, with the biggest change coming from a $4.4-billion jump in government wages and salaries. This increase stemmed from a $2.7-billion-a-year pay raise received by the military.

The manufacturing sector, which has suffered all year from inroads made by foreign competition, enjoyed a modest increase of $1.7 billion as both employment and hourly earnings rose.

John Albertine, president of the American Business Conference, a coalition of high-growth companies, predicted improved income gains in coming months as the falling value of the dollar helps to boost production by domestic manufacturers.

“Big price increases are due in foreign, particularly Japanese, products come January and they will help steer American consumers back to domestically produced goods,” he said.

The 0.9% rise in personal consumption spending, which includes virtually everything except interest payments on debt, followed a decline of 1.4% in October, the steepest drop since May, 1960. Consumer spending had risen a sharp 1.2% in September.

The wide swings have been caused by auto sales, which soared in August and September, only to plummet in October after dealers discontinued most of the attractive financing deals they had been offering.

Auto sales were up modestly in November, and spending rose at an annual rate of $22.1 billion after a $37.5-billion drop in October.

Disposable, or after-tax, income rose 0.5% in November, matching the October increase.

Americans’ savings as a percentage of disposable income dipped to 4.2% in November from 4.5% in October. However, it was still higher than the record low of 2.8% in September, a month when savings plunged as consumers dipped into their bank accounts to finance car purchases.