Americans’ Spending Rises 0.5% in November; Income Increases 0.4%

Santas outnumbered Scrooges as Americans spent briskly heading into the holiday season, shelling out slightly more than they earned.

Americans’ spending rose a strong 0.5% in November, the Commerce Department said Thursday.

At the same time, personal income, which includes wages, interest and government benefits, grew 0.4%, the slowest pace since August, but still much better than many analysts were forecasting.

With the lowest unemployment rate in three decades, inflation tame and the stock market strong, consumers have been feeling wealthy and in the spending mood, economists said.

“With money to spend, households did just that,” said economist Joel Naroff of Naroff Economic Advisors. “Yes, Virginia, there is a Santa Claus this year for an awful lot of retailers.”

Hearty consumer spending, which accounts for two-thirds of all economic activity, is a main engine behind the economy’s stellar growth, estimated to be 4% this year.

Americans’ spending has increased each month since April 1997, when it fell 0.1%.

Ken Mayland, chief economist with KeyCorp, said 1999 “is ending with a spending bang, making it the year of the consumer.”

In October, spending rose 0.7%, but personal income soared 1.3%, the best performance in five years as federal subsidy payments to farmers and union signing bonuses in some manufacturing industries boosted income.

Those factors also contributed to November’s growth in income. Wages rose a modest 0.3% last month compared with a 0.6% gain in October.

With consumer spending outpacing income, the nation’s savings rate--savings as a percentage of after-tax income--was pulled down to 2.2% in November from 2.3% in October. The rate hit a record monthly low of 1.6% in September.

In a separate report, the Commerce Department said that orders to U.S. factories for big-ticket manufactured goods shot up by 1.2% in November, the first gain since August. Economists said the report is another sign that U.S. manufacturers continue to recover from the darkest days of a global financial crisis that began in 1997 and cut sharply into foreign demand for their products.

A big 8.7% jump in orders for electronic and electrical equipment, which includes semiconductors, circuit boards and home appliances accounted for the advance.

Both reports “show the U.S. economy is ending 1999 on a very solid foundation,” said economist Lynn Reaser with Bank of America Private Bank.

In another report, the number of Americans filing for unemployment benefits last week rose by 14,000 to 281,000, the Labor Department said. Economists consider claims levels below 300,000 an indication of a tight labor market, meaning employers have difficulties finding scarce workers for job openings.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Durable Goods

New orders, in billions of dollars, seasonally adjusted: November:

$204.9 billion