1.3% Income Jump in October May Mean Big Holiday Spending
Americans’ personal income vaulted ahead in October at the fastest pace in more than five years, giving consumers plenty of cash to spend as they head into the holiday shopping season.
The Commerce Department said Friday that personal income--which includes wages, interest and government benefits--rose 1.3% last month, more than twice as fast as spending. It was the biggest monthly gain since April 1994, when income also rose 1.3%. Income growth was flat in September.
The boost in October income came from a big jump in federal subsidy payments to farmers and signing bonuses for union workers at car and aircraft factories. Wages also grew by a solid 0.6%.
Not counting these factors, personal income still rose a strong 0.5% in October, underscoring economists’ belief that consumers are in good shape to buy during the holiday season. Some economists anticipate that income will rise by a brisk 0.4% or 0.5% in November. Others think it will be much higher.
“Consumers have the fuel--income gains--to make this a hot holiday shopping season. I think they’ll be out in droves at the malls or at home shopping on the Internet, spending lots during the holidays,” said Richard Yamarone, economist with Argus Research Corp.
In October, Americans’ spending, which has gone up every month this year and for most of those months has outpaced income, rose a sizable 0.6%, following a 0.5% advance in September.
The nation’s economic good times are supporting consumer spending. With unemployment at its lowest point in three decades, inflation tame and stock and bond markets strong, Americans are feeling wealthy and in the buying mood, economists said.
“Consumer spending shows no signs of slowing down heading into the holiday season,” said Lynn Reaser, an economist with Bank of America Private Bank.
Spending on big-ticket manufactured goods such as cars rose 0.6% in October, while spending on nondurable items, such as food and fuel, grew by 0.5%.
With Americans’ income rising more than twice as fast as their spending in October, the nation’s savings rate--savings as a percentage of after-tax income--rose to 2.3%, following a record monthly low of 1.5% in September.
Economists say the savings rate as calculated by the government gives an incomplete picture of household finances. The savings rate measures only the amount of money being put aside each quarter for savings. It does not include gains Americans have realized on their savings in previous quarters from such things as rising stock market values and higher real estate values for their homes.
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Personal Income
Seasonally adjusted annual rate, in trillions of dollars:
1999, October: $7.94 trillion
Source: Commerce Department
Personal Spending
Seasonally adjusted annual rate, in trillions of dollars:
1999, October; $6.38 trillion
Source: Commerce Department
