Americans’ personal income in January posted its largest gain in more than a year, rising 1.8%, but people chose not to spend much of the extra money and instead built up their savings, the government reported Wednesday.
Analysts were cautious about whether the report might signal the start of a long-sought slowdown in consumer spending, which would help cool inflationary pressures in the economy, and said the robust income figures suggested continued strength in the economy.
Led by increases in wages and salaries reflecting strong employment gains, income rose $74 billion to a seasonally adjusted annual rate of $4.28 trillion in January, the Commerce Department reported.
Personal consumption spending, meanwhile, edged up just 0.1% to a seasonally adjusted annual rate of $3.35 trillion. The figure includes virtually all consumer spending except interest payments on debt.
At the same time, Americans added to their savings at an annual rate of $211 billion.
With the income gain strongly outpacing the rise in spending, the personal savings rate rose to 5.8% from 4.3% in December. It was the highest savings rate since May, 1985, when Americans set aside 6.5% of their disposable income.
Analysts found the weak spending figure surprising in light of the strong income growth and were divided about whether it marked the start of a trend toward slower consumer spending.
Jerry Jasinowski, chief economist for the National Assn. of Manufacturers, said the figures were “welcome news, suggesting that fears of the economy overheating were unfounded.”
But Lea Tyler, senior economist for the WEFA Group, a Bala-Cynwyd, Pa., forecasting firm, said it was too early “to talk about consumers really retrenching.”
Tyler said that if strong employment figures continue to drive income upward, it could “raise some concerns about inflation in the coming year.”
The Federal Reserve Board since last March has been pushing interest rates up in an effort to slow the economy and dampen inflationary pressures. Fed Chairman Alan Greenspan has singled out higher wage pressures in the economy as part of the cause of accelerating inflation.
Just last week, the central bank boosted its key lending rate half a percentage point to 7% after worries about inflation were heightened by a report that consumer prices shot up 0.6% in January.
Consumer spending rose at a robust 3.5% annual rate last year, a pace that analysts said is too fast, given constraints on production caused by high operating rates and tight labor markets.
Robert Dederick, chief economist for Northern Trust Co. in Chicago, said January’s income and spending report sent mixed signals, with the strong income gain suggesting that “the economy was continuing to race ahead too fast,” while the spending pace suggests “a much more restrained pattern” that would be welcome.
Sandra Shaber of the Futures Group in Washington said it was possible that January’s weak consumer spending figure may be one of “the first signs that higher interest rates are taking their toll” on consumer spending.
However, Shaber said, the figures more likely signaled that “people are better able to save” after enjoying sustained increases in income during the past year.
January’s increase in personal income was the biggest monthly increase since a 2% jump in October, 1987, while the slim rise in spending was the weakest performance since a 1.5% decrease in September.
The increase in income was paced by a 1.2% gain in the key component of wages and salaries, reflecting continued strong employment.
The recent income gains were bolstered by several unusual factors, including a 4.1% pay raise in January for federal civilian and military personnel, a 4% cost-of-living increase in Social Security benefits in January.