Inflation Outpaces Personal Income; Spending Up 6%

Despite a robust 0.7% increase in December, Americans’ incomes failed to keep up with inflation last year, Commerce Department figures showed Monday.

December’s gain--which reflected the fact that workers put in longer hours at higher pay levels--followed a revised 0.4% rise the month before.

Although analysts said the gain was better than expected and spelled good news for the economy, they warned that it did not signal a quick end to the recession.

The department said incomes grew 6% during 1990. At the same time, inflation as measured by the Labor Department’s Consumer Price Index jumped 6.1%. Incomes totaled $4.65 trillion after advancing 7.7% in 1989.

Americans as a whole spent every bit of their added income. The report showed that consumer spending rose an identical 6% last year. Consumption amounted to $3.66 trillion, after a 6.6% gain a year earlier.

The 0.7% income gain in December, to a seasonally adjusted annual rate of $4.75 trillion, came despite rising unemployment and was the largest since a similar 0.7% increase last March. It more than doubled last month’s 0.3% inflation growth.

A key component of the income category--wages and salaries--jumped $26.8 billion after falling $2.2 billion in November. The November decline was initially reported to have totaled $3.9 billion.

“It’s good news, but I just think it’s presumptuous to say the economy has bottomed out,” said Charles Lieberman, economist at Manufacturers Hanover Trust.

The data “would lead to the conclusion that perhaps the economy is beginning to stabilize,” said Norman Robertson, economist at Mellon Bank, but he cautioned against making too much of one month’s numbers.

However, Michael K. Evans, president of Evans Economics Inc., described the increase as “a strong showing” and a “very substantial rebound” from the previous two months.

“If wages and salaries keep growing at this rate, this recession will be a very brief one,” he said.

At the same time, consumer spending increased 0.7% to a seasonally adjusted annual rate of $3.75 trillion, up from a revised 0.1% advance in November and a 0.2% decline in October.

Much of the boost was attributed to increased spending on utilities and new car sales. It was the biggest gain since an 0.8% advance last September.

Consumption in November first was said to have been unchanged from the previous month.

Consumer spending is considered a barometer of economic health because it accounts for about two-thirds of the nation’s economic activity.

Americans’ savings rate--savings as a percentage of disposable income--slipped slightly in 1990--to 4.5%, compared to a 4.6% rate in 1989.

The rate for December was unchanged from November’s 4.2%, the highest since a 4.7% rate last July.

The report said Americans’ disposable income--income after taxes--rose 0.7%.

The spending and income figures were not adjusted for inflation. When adjusted, spending rose 0.5% after declining 0.1% in November and 0.9% in October.

Disposable incomes, when adjusted for inflation, also rose 0.5%. They rose 0.1% in November after a 0.8% decline the previous month.

Purchases of durable goods--items such as cars and appliances expected to last more than three years--rose $4.9 billion. Spending on non-durable goods fell $2.1 billion. Spending on services jumped $19.9 billion.

Personal Income Growth States with highest and lowest percentage change in personal income in the third quarter of 1990:

Percent Top change Nevada 3.0% Arizona 2.1 California 1.8 Utah 1.7 Flordia 1.7 S.C. 1.7 Hawaii 1.7 Michigan 1.6 Wyoming 1.5 New Mexico 1.5

Percent Bottom change N. Dakota -3.4% S. Dakota -1.7 Nebraska -1.3 Idaho 0.0 N.H. 0.0 Vermont 0.1 Montana 0.2 Rhode Island 0.2 Arkansas 0.2 Kansas 0.3

Source: Commerce Department, Associated Press Personal Income Trillions of dollars, seasonally adjusted rate Dec., ‘90: 4.75 Nov., ‘90: 4.71 Dec., ‘89: 4.50 Source: U.S. Dept. of Commerce, Associated Press/ Los Angeles Times Personal Spending Trillions of dollars, seasonally adjusted rate Dec., ‘90: 3.75 Nov., ‘90: 3.72 Dec., ‘89: 3.55 Source: U.S. Dept. of Commerce, Associated Press/ Los Angeles Times