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 user 2005-03-02 at 9:25:00 am Views: 44
  • #10620
    Personal Incomes See Biggest Dip in Decade
    Consumer Spending is Flat
    as Well

    WASHINGTON(Feb. 05)-Personal incomes which had been
    bolstered by a large stock dividend payment in December plunged 2.3 percent in
    January,the sharpest decline in more than a decade. Consumer spending was flat,
    the government reported Monday.

    The Commerce Department said Monday that the sharp January
    drop in incomes followed a record 3.7 percent jump in incomes in December with
    both months heavily influenced by a $3 per share dividend payment that computer
    software giant Microsoft made on Dec. 2.

    Without that $32 billion payment, personal incomes would
    have shown steadier gains of 0.6 percent in December and 0.5 percent in

    Personal spending was unchanged in January after having
    risen by 0.8 percent in December. This reflected the fact that demand for autos
    sagged last month as dealers removed attractive incentive offers they had used
    to spur end-of-the-year sales.

    Consumer spending, which accounts for two-thirds of total
    economic activity, is expected to post solid gains again this year, bolstered by
    continued improvements in employment, but not quite up to the pace in 2004. Last
    year, consumer spending rose by 3.8 percent, helping to push overall economic
    growth up by 4.4 percent last year.

    Economists are looking for both overall economic growth and
    consumer spending to slow a bit this year as continued interest rate increases
    from the Federal Reserve dampen consumer demand. The Fed hiked interest rates
    for a sixth time in early February and a seventh quarter-point increase is
    expected when Fed policy-makers next meet on March 22.

    For January, consumer spending was held back by a big drop
    in demand for durable goods such as cars. It was the weakest showing since a 0.3
    percent decline in June of last year.

    After taking account of inflation, consumer spending
    actually fell by 0.2 percent in January.

    Disposable, or after-tax incomes, fell by 2.6 percent last
    month after having shot up by 4.1 percent in December, changes that were also
    influenced by the Microsoft stock dividend payment.

    The drop in disposable incomes pushed the savings rate down
    to 1 percent in January. Savings had jumped to 3.6 percent of disposable income
    in December, bolstered by the dividend payment, after having been at 0.5 percent
    for three straight months before that.