Income, Spending Rise 0.9%, Indicating Fast Growth of Economy

Personal income and spending rose a strong 0.9% in December, the government said today, providing further evidence of rapid growth in the economy.

The Commerce Department said that personal income was up 7.5% for all of 1988 over 1987, the largest increase in four years.

The gain reflected the large increase in the number of new jobs last year, but economists say gains in personal income and spending should slow as higher interest rates put a damper on economic activity.

Despite the overall rise in personal income, weekly paychecks for most Americans have failed to keep pace with inflation and more households are becoming two-earner families, said Cynthia Latta, senior financial economist for Data Resources, a Lexington, Mass., forecasting firm.

“For hourly workers, inflation has taken a bite out of spending power. That is why you have seen so many women come into the work force in the last year,” she said.

Largest Since 1984

The 7.5% rise in personal income for all of 1988 was the largest gain since a 9.5% increase in 1984, the department said.

Disposable personal income, which is after taxes and adjusted for inflation, rose 3.8% last year for the biggest increase since a 3.9% increase in 1986.

Latta said the December income and spending figures gave more evidence that the economy is growing faster than can be sustained without a rapid rise in inflation and explained why the Federal Reserve Board is attempting to slow growth by boosting interest rates.

The $37.1-billion December gain raised personal income to a seasonally adjusted annual rate of $4.21 trillion and followed a 0.2% drop in November.