Personal Income Up 1.2% in ‘87--Lowest in 5 Years

Americans’ personal incomes climbed 0.7% in December, closing out a lackluster year in which incomes edged up only 1.2%, the poorest showing since the last recession, the government reported today.

The Commerce Department said the 1.2% increase in disposable incomes, after adjusting for inflation, compared to a 4% advance in 1986. It was the weakest showing since incomes rose only 0.6% in the recession year of 1982.

Economists have been citing the weak income growth as one of the reasons they believe consumer spending will be sluggish in the coming year. Consumer spending accounts for two-thirds of overall economic activity. If it declines significantly, it could topple the country into a recession.

There have already been concerns expressed about consumer spending, given the record plunge of stock prices in October. Many analysts believe Black Monday will make Americans fearful about making big-ticket purchases.

The current 5-year-old economic recovery has been driven in large part by brisk consumer spending. However, that spending has also pushed Americans’ saving rates to historically low levels.

The report today said the saving rate for all of 1987 fell to 3.8%, the lowest level it has been in 40 years, since a 3.1% rate in 1947. This rate reflects the amount of savings as a percent of disposable income.

In December, the report said personal consumer spending rose 0.5%, matching the increase in November.

The income gain of 0.7% in December represented a rebound from November, when incomes fell 0.5%.

However, the government said that the swings in both months were influenced primarily by changes in farm subsidy payments.

Farm incomes increased at an annual rate of $9.7 billion in December following a steep drop of $40.1 billion in November, with the movements in both months largely due to crop subsidy payments.

Another factor influencing income growth in December was a retroactive payment to Postal Service employees.

Without the special factors, income growth would have been a more steady 0.6% in November and 0.5% in December.