Spending Up in November; Income Lags

Consumer spending shot ahead at the fastest clip in nearly two years in November, according to a Commerce Department report released Tuesday. But analysts predict that consumption will slow this year because of weak income growth and large accumulations of debt.

Indeed, surveys by government agencies and private organizations suggest that consumption has already begun to slow, as seen in lackluster holiday spending.

The department reported Tuesday that personal incomes grew just 0.2% in November, meaning Americans had to dip into savings or use credit cards to finance the buying that boosted spending 0.9% that month.

“Given the high levels of debt burdens, spending growth has to be more consistent with income growth,” said economist Mark Zandi of Regional Financial Associates in West Chester, Pa. “Clearly, the consumer gains are not supportable. We’re going to see spending growth in 1996 much weaker than in 1995.”

As a result, Zandi said, the consumer sector, which represents about two-thirds of the nation’s economic activity, will not be able to contribute as much to economic growth as it has in recent years.

The Commerce Department report shows that personal incomes increased $11.5 billion in November at an annual rate, the slowest growth rate since August, when incomes were flat. Incomes grew 0.7% in October, a $45.2-billion increase, after having risen 0.5% in September. They were flat in August.

Spending, though, increased at a $45.7-billion rate in November, the biggest gain since February 1994, when there was a 1.5% advance. The gain contrasts with the 0.3% decline for October, when spending fell $13.9 billion.

The report combines October and November figures, both of which were postponed by the partial shutdown of the federal government caused by the budget impasse and by January’s blizzard.

Disposable income--that is, income after taxes--rose 0.2% in November, or at a $12.5-billion rate, much slower than the 0.8% increase in October, reflecting a $40.7-billion increase.

Americans’ savings rate--that is, savings as a percentage of disposable income--was 4.5% in November, down from 5.2% the previous month.

Spending on big-ticket durable goods such as cars and computers rose 2.3% to a seasonally adjusted annual rate of $617.5 billion after falling 1.8% to $603.8 billion in October. The Commerce Department attributed half the November increase to motor vehicle purchases.

When adjusted for inflation, consumer spending also showed a 0.9% increase for November--but a decrease of 0.6% for October. It was flat for September.

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Personal Income

Seasonally adjusted annual rate, in trillions of dollars:

Nov. 1995: $6.21

Source Commerce Department

Personal Spending

Seasonally adjusted annual rate, in trillions of dollars:

Nov. 1995: $5.01

Source Commerce Department