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Income And Spending Rise Strongly at Year End
By Dave Skidmore  Associated Press
WASHINGTON — Americans' personal income surged 0.5 percent in December, the best gain in 10 months, and they spent every bit of it and more.

The increase in personal income, the most since February, followed 0.4 percent gains in October and November, the Commerce Department said Monday.


Personal spending surged 0.8 percent, the biggest increase in seven months, bolstered by last-minute holiday shopping and a continuing rebound in auto sales after summer strikes at General Motors. That followed a modest 0.2 percent increase in November.

Separately, the department said construction spending surged 1.7 percent in December, the largest gain in six months, helped by unseasonably mild weather for much of the month.

Also, an index compiled by the National Association of Purchasing Management showed manufacturing declined for the eighth consecutive month in January, but at a slower rate than during the previous seven months.

Norbert J. Ore, chairman of the organization's survey committee, found "signs of encouragement." These included marked increases in both production and new orders.

Because Americans spent more than they earned in December, their personal savings rate — savings as a percentage of after-tax income — went negative for the second time this year. It was zero in September, minus 0.1 percent in October, positive 0.1 percent in November and minus 0.1 percent again in December.

For the year, Americans saved just 0.5 percent of their income, the least since 1933, compared with 2.1 percent in 1997 and 2.9 percent in 1996. But, the figure is not as grim as it appears.

In 1933, the lack of savings reflected the huge drop in income Americans experienced during the depths of the Great Depression. In 1998, the low savings rate came because prosperous Americans spent a portion of their stock-market gains and tapped their home equity during a wave of refinancing spurred by the lowest mortgage rates since the 1960s.

Income in 1998 rose a healthy 5 percent, the fourth consecutive year at or above that level, but still the smallest rise since 1993. That included a 6.7 percent increase in wages and salaries — the most-watched component of income — and a 23.6 percent plunge in farm owners' income, reflecting the worldwide economic slump's impact on commodity prices.

Spending jumped 5.7 percent, the largest gain since 1994. It was propelled by a 7.5 percent increase for big-ticket durable goods, as low interest rates fueled car sales and record home sales encouraged strong sales of furniture and appliances.

In December, wages and salaries rose 0.5 percent. Service industries showed a brisk 0.7 percent gain and manufacturing, a more subdued 0.2 percent rise.

Spending during the month was led by a 4.2 percent surge for durable goods, items expected to last three or more years. It was the largest gain in 5 1/2 years. Spending on services rose 0.4 percent and on nondurable goods, 0.1 percent.

Construction spending, for the year, rose 6.3 percent to $657 billion, following a 5.9 percent rise in 1997. The categories with the biggest gains included single-family homes, 13.9 percent; apartments, 8 percent; offices, 16.4 percent, and hotels and motels, 12.6 percent.

Those increases offset drops of 0.6 percent in government construction, 1.5 percent in shopping centers and other commercial buildings, and 3.7 percent in industrial construction.

In December alone, housing construction rose 1.6 percent; commercial, 1.4 percent, and government, 3.7 percent. There were substantial increases for construction of single-family homes, offices, and highways and streets, but drops for hotels and motels and industrial buildings.

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