By
The Associated Press
WASHINGTON - Americans' incomes grew solidly in December, rising slightly faster than their spending as lower consumer confidence darkened their mood. Manufacturing activity plunged again in January, registering its lowest reading since 1991.
The Commerce Department reported yesterday that incomes, which include wages, interest and government benefits, rose by 0.4 percent in December, twice as fast as many analysts were predicting, and up from a 0.2 percent rise the month before.
Federal payments to farmers and retirees helped drive income higher. Wages grew by 0.2 percent in December, down from a 0.3 percent rise.
Spending, meanwhile, rose for the third straight month by 0.3 percent, slightly stronger than the 0.2 percent rise many analysts were forecasting. But December's increase was much smaller than the 0.8 percent gain posted in September.
In another report, the National Association of Purchasing Management said that its index of manufacturing activity fell to 41.2 in January. The last time manufacturing posted a reading that low was in March 1991.
A level below 42.7 generally indicates a contraction in the economy, said Norbert J. Ore, chairman of the NAPM. Yesterday's number "corresponds to a (negative) 0.6 percent annual decrease in real gross domestic product," Ore said.
On Wall Street, the Dow Jones industrial average gained 43 points by midday and the Nasdaq index, reversing Wednesday's slide, picked up 22 points.
Seeking to prevent the faltering economy from slipping into a recession, the Federal Reserve on Wednesday cut interest rates by another half percentage point, following up on its first cut on Jan. 3. Economists predict more rate reductions in the coming months. A chief reason the Fed cited for Wednesday's rate cut: further erosion in consumer and business confidence.
Consumer spending, which accounts for two-thirds of all economic activity, has been an engine of the economy's growth. But consumers have been tightening the belt, contributing to the economic slowdown.
The government reported Wednesday that the economy slowed to a growth rate of just 1.4 percent in the fourth quarter of 2000, the weakest performance in more than five years, as spending on cars, computers and other costly goods fell.
In another sign of the slowdown, the Labor Department reported yesterday that new applications for unemployment benefits rose by a bigger-than-expected 32,000 last week to 346,000.
While the weakening economy has really hurt some sectors, such as manufacturing, construction activity has remained stable, helped in part by cheaper borrowing costs.
Construction spending increased by 0.6 percent in December, following a revised 0.2 percent gain the month before, much stronger than the government previously reported, another report showed. Spending on big government projects led the way.
For all of 2000, construction spending rose 5.7 percent, down from a 7.4 percent gain in 1999, but the weakest showing since 1995.
In the income and spending report, spending on big-ticket goods fell for the third straight month in December, declining by 1.9 percent. Spending on nondurable goods, such as food and fuel, was flat after slipping 0.1 percent in November.
But spending on services increased a strong 0.9 percent in December, up from 0.8 percent in November, partly reflecting expensive utility bills.
Economists say a number of factors have been making people feel less inclined to make big purchases: Consumer confidence plunged in January, hitting its lowest level in more than four years. The stock market has been volatile and energy prices are higher.
For all of 2000, Americans' incomes rose by 6.3 percent, up from a 5.4 percent rise in 1999. Spending rose 7.8 percent, up from 7.1 percent in 1999 and the biggest increase since an 8.1 percent rise in 1988. The strong showing for both income and spending in 2000 reflected the sizzling economy during the first half of the year.
In December, disposable personal income, the amount left after paying taxes, rose by 0.4 percent, after a slim 0.1 percent rise the month before.
The personal savings rate - savings as a percentage of after-tax income - stood at a negative 0.8 percent in December, up from a negative 0.9 percent, an all-time monthly low.
Still, economists say the savings rates isn't as dire as it would seem because it doesn't capture gains realized from such things as higher real estate values or from financial investments.
