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Spending Outpaces Income
By Nell Henderson
Washington Post Staff Writer
Tuesday, February 3, 2004; Page E01
U.S. consumers' spending rose faster than their incomes in December, the Commerce Department reported yesterday, providing another sign that shoppers were continuing to add fuel to the economy's expansion.
Consumer spending rose at a brisk 0.4 percent seasonally adjusted annual rate in December, double the 0.2 percent pace at which personal income increased.
The figures climbed more slowly than in November, when personal spending rose at a 0.5 percent annual rate and personal income increased at a 0.3 percent pace.
Personal spending had been flat in September and October, prompting some economists to worry that consumers, who have kept the economy growing since the recession, might pull back because of feeble job growth in the past several months.
After-tax personal income was flat in December, after adjusting for inflation, the report showed. And consumers' saving fell that month to 1.3 percent of after-tax income, from 1.5 percent in November. Total personal income rose 3.1 percent last year, the report showed, but the part from wages and salaries rose just 2.2 percent for the year.
The figures "expose the weak underbelly of this recovery," wrote Mark Vitner, senior economist at Wachovia Economics Group, in a note to clients. "The lack of job growth has had the predictable effect on wages and salaries."
The economy grew at a 4 percent annual rate in the last three months of 2003 -- a solid, but much cooler pace than the sizzling 8.2 percent rate recorded last summer, the department reported Friday. Analysts had predicted some significant slowdown in economic activity at year end, coming after a burst of growth pumped up by tax cuts and a binge of mortgage refinancings.
"Tax cuts and lower mortgage rates saved the day in 2003" by putting more cash into consumers' hands, Vitner said. But, he concluded, "the recovery will be in serious trouble if job growth does not pick up soon."
Other evidence of an expanding economy emerged yesterday from reports on construction spending and manufacturing. Continuing strong growth in home construction helped power construction spending -- the total value of building projects underway in the nation -- to another monthly record. Construction spending rose at a 0.4 percent annual rate in December, compared with the month before, Commerce reported.
Manufacturing activity increased in January, according to the Institute for Supply Management. Its index of manufacturing activity rose to 63.6 last month from 63.4 in December.
Inflation remained quite low in December, according to a measure tied to the spending figures. Consumer prices, excluding those in the volatile food and energy categories, rose just 0.7 percent in December, compared with the same month a year earlier, according to the department's core personal consumption expenditure index. That is the smallest 12-month change since the government began keeping track 44 years ago. The 12-month change has declined in each of the last three months, according to the measure, which is closely followed by Federal Reserve policymakers.
The index rose in December by 0.2 percent, compared with November, the report showed.
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