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, income 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 income 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.
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 income, 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.