Consumer Buying Drops Record 2%

After a year-end buying spree in December, Americans cut back sharply in January, reducing personal consumption purchases by a record 2%, the government reported today.

The Commerce Department said the huge January decline followed a 2.2% spending increase in December, the biggest advance in 11 years. The decrease was the biggest since 1959, when the government began keeping monthly records on incomes and spending.

The wide swings in December and January were attributed to changes in the tax law, which spurred sales of autos and other big-ticket items in December as consumers rushed to make purchases while they could still deduct sales tax charges.

Personal Income Steady

The government reported that personal income was basically unchanged in January after posting a sizable 0.6% rise in December. It was the weakest showing for income growth since last June, which was also unchanged.

However, disposable, or after-tax income, shot up by 0.8% in January, more than double the December advance of 0.4%.

The big rise in this category was also attributed to the new tax law, which cut back on income withheld from paychecks in January because of the lower tax rates. The department said the drop was actually understating Americans’ tax liabilities, however, because many people have not filed new W-4 forms to adjust their withholdings to conform with the new law.

$56.2-Billion Drop

The report said personal consumption spending, which includes virtually everything except interest payments on debt, fell by $56.2 billion at an annual rate in January, following an increase of $62.2 billion in December.

Purchases of durable goods, items expected to last three or more years, decreased by $69.5 billion. However, $62.9 billion of that decline came in the auto category.

Without the big drop in car purchases in January, personal consumption spending would actually have risen 0.2% for the month as purchases rose for non-durable goods and services, including housing costs.

Americans’ personal savings rate, savings as a percentage of disposable income, rose to 3.9% after hitting a record low of 1.3% in December.