Incomes Rise 0.4%; Export Orders Decline
Moderate income growth at year-end helped U.S. consumers enter 1998 in good shape, but a closely watched gauge of U.S. manufacturing unexpectedly cooled in January as export orders slumped for the first time in two years, according to separate reports released Monday.
Americans’ personal income rose 0.4% in December, with spending nearly keeping pace by rising 0.3% during the holiday shopping season, the Commerce Department said. However, both income and spending grew at slower rates than during the two previous months.
Also, a separate report from the National Assn. of Purchasing Management showed growth decelerating in the manufacturing economy. And a third report showed construction spending stagnant at the end of 1997.
Economists said the mix of factors should keep Federal Reserve Board policymakers, meeting today and Wednesday for the first time this year, from either raising or lowering short-term interest rates.
“Income growth is providing some momentum to the economy, but the Asian situation appears to be cooling demand in the industrial sector and keeping a lid on prices,” said economist Lynn Reaser of NationsBank Corp. in Jacksonville, Fla.
In a sign that the Asian crisis is beginning to pinch, the purchasing managers trade group said its index declined for the third straight month, to 52.4 in January from 53.1 in December. Analysts expected a January reading of 53.3.
The drop in the NAPM export orders index to 45 in January from 50.6 in December is one reason the U.S. economy will slow this year, analysts said.
As with the overall NAPM index, readings of 50 or more mean manufacturing is expanding, and readings below 50 signal a contraction.
The Commerce Department report showed that for all of last year, income rose 5.8%, topping the 5.6% increase of 1996. Spending in 1997 rose 5.4%, the strongest showing since 1994, after increasing 5% a year earlier.
Changes in personal income can portend future business activity because they indicate how much consumers will be able to spend.
The overall 1997 savings rate declined to 3.8%, the lowest since 1939. That, however, doesn’t account for billions invested in stocks and mutual funds and represents only a residual after paying household expenses and taxes.
The rise in income last year--paired with low mortgage rates--boosted U.S. housing affordability during the fourth quarter of 1997, the National Assn. of Realtors said.
The association’s housing affordability index rose to 132.3 during the last three months of 1997, from 126.9 in the third quarter and from 131.6 in the year-ago quarter.
In another report, however, the Commerce Department said spending on new U.S. construction rose 0.1% in December, as declines in public construction offset strength in private and residential building.
