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Spending Off a Record 2%; Income Rises : Decline in Personal Consumption Buying Traced to Auto Sales

November 20, 1986|Associated Press

WASHINGTON — Americans' spending plunged a record 2% in October, while personal income rose a modest 0.4%, the government reported today.

The Commerce Department blamed the huge decline in personal consumption spending on a big drop in auto sales last month after increases in the two previous months as consumers rushed to take advantage of attractive cut-rate financing offers.

The spending decline, the biggest in 27 years of record-keeping, followed a 1.4% increase in September and a 0.9% August gain.

The 0.4% rise in personal incomes, while a modest increase, was the biggest monthly advance since a 1.2% rise in April. It followed smaller gains of 0.3% in September and 0.2% in August.

Savings Rate Up 4.1%

Economists have expressed concern that with Americans' incomes growing so slowly, they will be forced to cut back on the spending spree that has provided much of the momentum for economic growth. The big drop in spending in October would seem to support that theory.

Americans' disposable, or after-tax, incomes rose a small 0.2% in October, matching the September advance.

The personal savings rate, savings as a percentage of disposable income, rose in October to 4.1% as a result of the cutback in purchases of big-ticket items such as cars. The savings rate had plummeted to a low of 2.0% in September because of the boom in car sales.

The report said personal consumption spending, which includes virtually everything except interest payments on debt, fell at an annual rate of $57.1 billion in October, a sharp turnaround from a $38.3-billion increase in September.

Non-Durable Purchases Rise

Purchases of durable goods, including cars, plummeted $70.4 billion at an annual rate last month in contrast to a $37.9-billion increase in September. Both the big rise and the big decline were attributed to motor vehicle purchases.

Purchases of non-durable goods, items not expected to last three years, increased at an $8.2-billion rate in October, contrasted with a decline of $7.4 billion in September. Purchases of services, which includes housing costs, rose at a rate of $5.1 billion after a $7.9-billion increase in September.

Wages and salaries, the most important component on the income side, rose $14.3 billion at an annual rate in October, a much bigger advance than the $4.4-billion rise in September. However, much of the improvement came from a bonus payment to auto employees, rather than increases in the number of workers or hours worked.

Subsidy payments to farmers also influenced the income side with the payments rising in September but falling in October.

Without the special factors of the auto bonuses and the farm subsidy payments, incomes would have risen 0.3% in October and 0.2% in September.

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