Latest Reports Spark Fears of Recession

Income growth registered its worst performance since the last recession, savings fell to a 40-year low, and import prices rose dramatically last year, the government reported Thursday.

The latest batch of data from the government provided more evidence of trouble in the economy and raised the possibility of a recession in 1988.

Americans’ disposable, or after-tax, incomes edged up 1.2% last year, following growth of 4% in 1986. It was the poorest showing since the recession year of 1982, when after-tax incomes grew by 0.6%.

Economists expressed concern that these weak showings would lead to a further slowdown in consumer spending.

The Commerce Department report showed consumer spending, after adjusting for inflation, rose just 1.8% last year, less than half the growth rate of the previous two years.

Since consumer spending accounts for two-thirds of overall economic activity, further weakness in this area, especially without offsetting strength in other sectors, would be enough to trigger a recession.

Cracks Are Appearing

The department’s report pointed out the cracks that have begun to appear in the consumer-driven growth period, which has now lasted a peacetime record of more than five years.

With slower growth in incomes, Americans had less money to put into savings, resulting in a drop in the savings rate to 3.8%, the lowest this figure has been in 40 years. The savings rate, which had been 4.3% in 1986, represents savings as a percent of disposable income.

In December, the department reported that incomes, before adjusting for inflation, rose 0.7%, while personal consumption spending advanced 0.5%, the same figure as in November.

Economists said the annual income and spending figures highlighted the dangers facing the economy. With inflation picking up and income growth sluggish, Americans are seeing their purchasing power squeezed.

The Labor Department, meanwhile, said the price of imported goods shot up 14.8% in 1987, the biggest increase since the government began keeping the statistics in 1983. Before 1987, import prices actually had declined four consecutive years, including a drop of 8.6% in 1986.

The change was not as significant when oil prices are excluded, however. Discounting the changes in imported energy, the cost of foreign goods rose 9.6% in 1987 and 8.4% in 1986.

Economists said these figures point out the impact the weaker dollar has had on U.S. inflation rates. Consumer prices rose by 4.4% in 1987, four times the rate of increase in 1986.