Americans' incomes rose sharply in January and
spending shot up even more quickly as mild weather and deep
discounts lured people into stores and malls.
The Commerce Department reported Thursday that incomes, which
include wages, interest and government benefits, grew by 0.6
percent, following a 0.4 percent rise in December.
Spending, meanwhile, increased by 0.7 percent in January, up
from a 0.4 percent gain in the month before.
The increases in both income and spending were the biggest since
September whey they rose by 1.1 percent and 0.8 percent,
respectively. January's performance was largely in line with
analysts' expectations.
With spending outpacing income growth, Americans' personal
savings fell to a record monthly low.
The personal savings rate — savings as a percentage of after-tax
income — declined to a negative 1.0 percent in January, following a
negative 0.8 percent in December. The last time the savings rate
was positive was in June, when it stood at 0.3.
Analysts say the savings rate doesn't provide a complete picture
of household finances because it doesn't capture gains realized
from such things as higher real-estate values or from financial
investments.
The government said Americans' incomes were affected by a number
of special factors in January. Cost-of-living adjustments to
federal transfer payment programs and pay raises for federal
employees and military personnel boosted overall income, while less
generous federal payments to farmers subtracted from it.
Excluding those special factors, the government said, incomes
rose 0.5 percent in January.
The Federal Reserve cut interest rates twice in January,
totaling a full percentage point, in an effort to prevent the weak
economy from slipping into recession.
Fed Chairman Alan Greenspan said one of the biggest factors in
determining whether there is a recession is how well consumer
confidence holds up during the slowdown.
Consumer spending accounts for two-thirds of all economic
activity and was a main engine of the economy's sizzling growth
that the country enjoyed until the second half of last year.
In January, spending on durable goods, such as cars, rose by 1.9
percent, after a 1.0 percent drop the month before. For
nondurables, such as food, spending rose 0.6 percent, following a
0.1 percent rise. Spending on services, which includes gas and
electric utilities, rose 0.5 percent after a 0.8 percent increase.
The figures aren't adjusted for inflation and reflect higher prices
for energy.
