More Signs of an Economic Recovery : Finances: Marked increases in personal income and spending are expected to brighten Christmas shopping projections.
In the latest of a string of reports suggesting that the economy is coming back to life, the government said Friday that Americans’ incomes and spending both climbed last month.
The Commerce Department said personal income rose 1% in October--the sharpest rise in nearly a year--while personal spending rose 0.7%. And the savings rate, which economists watch closely to gauge the amount of money Americans have for future investments, rose to 4.7% in October from 4.4% in September.
The stronger than expected economic news bolstered reports that the holiday shopping season started off strongly on Friday.
Shoppers nationwide made the traditional opening day of the Christmas shopping season the brightest in several years.
The reports were “certainly good news for retailers,” said Norman Robertson, chief economist at Mellon Bank in Pittsburgh. “People are feeling a little better about the economy, and now they have a bit more money in their pockets. Hopefully, they’ll spend it.”
The reports also helped to push stocks higher on Friday, with the Dow Jones average of 30 industrials--which had risen 43.22 points Tuesday and Wednesday--climbing another 15.94 points to 3,282.20.
But the reports also drove bond yields slightly higher, as investors feared that the weeklong string of bullish economic reports is a harbinger of higher interest rates ahead. The yield on the Treasury Department’s main 30-year bond rose to 7.59%, up from 7.535% Wednesday.
Commerce said that income from wages, salaries and all other sources rose by $51 billion in October from September, to an annualized rate of $5.13 trillion. It was the biggest monthly increase since a 1.2% gain last December, and followed a 0.5% rise in September.
Spending rose to an annual rate of $4.16 trillion. Spending had risen 0.9% the previous month.
Analysts said that consumers appear more willing to spend now that the uncertainty of the presidential election is over and the job market appears to be stabilizing.
“There’s every reason to expect we will have a decent Christmas,” Allen Sinai, an economist at the Boston Co., told Associated Press. “It won’t be like old times, old times being the 1980s, but it will be better than the last few years.”
Analysts noted that several special factors contributed to last month’s gains in personal incomes.
“Hawaiians went back to work after their (September) hurricane, farmers got bigger subsidies and a lot of auto workers got their bonus checks last month,” said economist Robert G. Dederick of Northern Trust Co. in Chicago.
But even after adjusting for special factors, total incomes grew at a respectable 0.4% after a 0.3% gain in September.
The spending increases were fueled by a 2% rise in the purchases of big-ticket durable goods, such as cars and other items that are expected to last three or more years. Spending on non-durable goods rose 0.3%, while spending on services rose 0.7%.
On Wall Street, traders bid up stock prices amid hopes that consumers would use their extra cash to buy new goods or make other investments. But bond yields rose on fears that a sustained pickup in consumer spending could eventually lead to a rise in inflation, making the value of existing bonds worth less.
Many analysts, however, said such fears are unfounded.
“The government has released some pretty good reports over the past few days, but the unemployment rate is still near 7.5% and the economy is still slow,” Dederick said. “We don’t have the ingredients for a run-up in inflation.”
Friday’s report capped a week of generally good economic news. On Tuesday, the Conference Board said its widely watched consumer confidence index rose a robust 11 points after the presidential election. Also, the Commerce Department said orders to U.S. factories for big-ticket items such as cars and appliances rose 3.9% in October from November.
* LET THE SEASON BEGIN
Shoppers made the opening day of Christmas shopping the brightest in several years.
Personal Income
Trillions of dollars, seasonally adjusted annual rate.
Oct., ‘92: 5.13
Sept., ‘92: 5.08
Oct., ‘91: 4.89
Source: Commerce Department
Personal Spending
Trillions of dollars, seasonally adjusted annual rate
Oct., ‘92: 4.16
Sept., ‘92: 4.13
Oct., ‘91: 3.93
Source: Commerce Department
