Americans’ after-tax incomes shot up 3.8% last year, with some of the extra money going to raise the nation’s personal savings rate from the 40-year low it had hit just a year before, the government said Monday.
The Commerce Department said the gain in income, adjusted for inflation, was the best since a 3.9% gain in 1986 and more than double 1987’s 1.7%.
In December, personal income totaled $4.2 trillion, with much of the $37.1-billion jump from November resulting from farm subsidy payments. Without those outlays, the government said, December’s total income would have been up 0.8%.
Last year’s income gains spurred both spending and saving:
- Consumer spending rose 2.8% after adjusting for inflation, after increases of 2.7% in 1987 and 4.3% in 1986.
In December alone, spending rose 0.9%, with the biggest increase, 4.1%, posted for durable goods--"big ticket” items expected to last three or more years.
- The average personal savings rate rose a full percentage point, from 3.2% to 4.2%, the highest since the 4.4% set in 1985.
The 1987 rate was the smallest since a 3.1% rate in 1947.
“There’s a balanced picture for consumers, with a strong increase in income, a solid increase in spending and some increase in savings,” said Allen Sinai, chief economist for Boston Co.
However, Lawrence Chimerine, head of WEFA Group, an economic consulting firm in Bala-Cynwyd, Pa., cautioned that much of the year’s income growth came from increases in employment and could not be expected to continue unabated. Joblessness was at a 14-year low in 1988.