Consumer Spending, Wages Increase

Americans’ incomes and spending both posted healthy increases in November, but even with that good send-off for the Christmas sales season, actual results appear to be falling short of retailers’ hopes.

The Commerce Department reported Monday that personal incomes rose 0.5% last month, a solid rebound after showing no gain in October, while consumer spending was also up 0.5%.

The spending increase followed a 0.7% rise in October. Consumer spending is critical to the economy’s overall health because it accounts for two-thirds of total economic activity.

The reports had little impact on financial markets. Stocks ended mixed in light, pre-holiday trading, while bond yields dropped.

Analysts said the consumer spending report plus more recent information on December sales showed retailers would enjoy a good Christmas, if not quite as good as had been expected.

Economists said retail sales would be up around 5%, not a stellar year but better than 1995 when sales rose only 3.5%, leaving retailers with a lot of unsold goods.

“It won’t be an overwhelmingly strong Christmas, but it will be a good Christmas with just the right strength for the economy at present,” said Mark Zandi, an economist at Regional Financial Associates in West Chester, Pa.

Zandi said that with the economy finishing its sixth year of expansion and unemployment near seven-year lows, a big surge in retail sales would set off inflation worries at the Federal Reserve Board.

Most analysts believe consumer spending holds the key to whether the economy continues to grow at a modest rate through 1997 or whether last summer’s slowdown snowballs into something worse, such as an outright recession.

For November, wages and salaries were rising at a rate of $22.5 billion, after having fallen by $4.9 billion in October. In November, the number of people employed, the average number of hours worked and the average hourly earnings all increased.

The big increase in personal consumption spending reflected strength in purchases of services, which analysts attributed to a big jump in utility bills because of unusually cold weather.

Americans’ disposable income, the amount left after paying taxes, also was up in November, rising 0.5% following a small 0.1% October gain.

After adjusting for inflation, disposable income rose 0.3% in November after declining 0.2% in October.

After inflation adjustments, consumer spending was up 0.3% in November after a 0.4% October increase.

Americans’ personal savings rate--savings as a percentage of disposable income--was 5% in November, the same as October.