Consumer Spending Off a Record 2% in January : Personal Income Holds Steady; Both Indicate a Sluggish Start for Economy in ‘87, Experts Say

Consumer spending plunged a record 2% in January as Americans put away their pocketbooks after an auto buying spree, the Commerce Department reported Friday. Personal income was unchanged.

Private economists said both the big decline in spending and the weak income figure were signs that the economy got off to a sluggish start this year.

The department said the drop in personal spending erased most of a huge 2.2% December rise, which had been the biggest increase in 11 years.

Personal income was essentially unchanged in January after rising 0.6% in December. The new showing was the poorest since income levels failed to rise last June.

The combination of sluggish income growth and high consumer debt levels has led many economists to predict a substantial slowdown this year in consumer spending, which has been the driving force behind the 4-year-old economic recovery.

“We have been having meager gains in wages and salaries, and Americans are up to their ears in debt so it is not unreasonable to predict that consumers are finally beginning to take a rest,” said Michael K. Evans, president of Evans Economics Inc., a Washington forecasting firm.

Expects Stronger Growth

The Reagan Administration is forecasting that the overall economy this year will perform substantially better than last year’s anemic 2.5% growth rate, as measured by the gross national product. But Evans said he expects the economy will expand only 2% this year because of the weakness in the consumer sector.

The 2% decline in personal spending was the largest monthly drop since the government began keeping records in 1959.

While personal income was flat in January, disposable, or after-tax, income shot up 0.8%.

The big jump in after-tax income was attributed to the new tax law. The law cut back on income withheld from paychecks because of the lower tax rates, which went into effect on Jan. 1.

The figures actually understate Americans’ tax liabilities because most persons have not filed new W-4 forms to adjust withholding to conform with the new law.

“People are spending this tax windfall and may not realize that it will have to be paid back,” said Doug Handler, an economist with Wharton Econometrics of Philadelphia, who predicted that personal income will be reduced late next year or early in 1988 as more people start to pay the taxes they actually owe.

Personal spending 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 $69.5 billion with all but $6.6 billion of that decline coming in the auto category.