Personal Income, Spending Climb During December

Americans, buying big-ticket items to qualify for the sales tax deduction, pushed consumer spending up 2% in December in the biggest rise in more than a decade, while personal income, inflated by farm subsidy payments, rose 0.8%, the government reported Friday.

The spending increase followed a 0.6% November advance after a record decline of 1.9% in October. The new gain was the largest for one month since a 2.5% rise in May, 1975.

Analysts were not impressed, however, saying that the increase came primarily from a big jump in car sales in December as consumers rushed to make the purchases before the deduction for sales tax ended at the turn of 1987.

Likewise, the 0.8% rise in income was discounted by economists, who noted that much of the strength came from a huge increase in government subsidy payments for farmers. Without the farm aid, incomes would have risen a weak 0.2% last month.

Growth in wages and salaries, considered the key income category, rose just 0.3% in December, matching lackluster gains in recent months.

Many economists are forecasting that consumer spending, which has been the driving force behind the recovery from the 1981-82 recession, will weaken substantially in the coming year because of a combination of sluggish income growth, record high debt levels and low savings rates.

For all of 1986, the savings rate fell to 3.9% from 5.1% in 1985. It was the lowest level in almost four decades, matching a 3.9% rate in 1949 and surpassing only the 3.1% rate in 1947.

Consumer spending, which accounts for two-thirds of economic growth, rose at a solid 4% rate, after adjusting for inflation, in 1986. Many forecasters look for spending to grow at just half that pace this year.

Friday’s report said the 0.8% rise in overall income was the largest since a 1.2% last April and followed gains of 0.2% in November and 0.3% in October.