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Spending in U.S. Climbs a Strong 2%

January 23, 1987|Associated Press

WASHINGTON — Americans increased their spending by a huge 2% in December, the biggest rise in more than 11 years, while their incomes went up by 0.8%, the best showing since April, the government reported today.

The Commerce Department said the huge gain in personal consumption spending was attributed in part to a rush by consumers to buy big-ticket items while they could still take advantage of the sales tax deduction. The federal tax law changed on Jan. 1, eliminating that deduction.

The 2% increase followed a 0.6% November rise and a 1.9% October plunge. It was the biggest monthly increase since a 2.5% advance in May, 1975.

Income Sharply Higher

Personal incomes also showed a solid 0.8% advance in December, sharply higher than the modest gains of 0.2% in November and 0.3% in October. It was the biggest income gain since a 1.2% rise in April. The December increase reflected gains in employment, hours and earnings.

While the spending and income gains were substantial last month, analysts are still concerned that consumer spending will weaken in the new year, causing a slowdown in the overall economy.

Consumer spending accounts for two-thirds of all economic activity, so a substantial decline could plunge the country into a recession, something that economists are not forecasting at present.

Personal consumption spending, which includes virtually everything except interest payments on debt, shot up at an annual rate of $57.3 billion in December, compared to a November rise of $17.1 billion. Purchases of durable goods rose $47.5 billion, with sales of new cars accounting for most of the increase.

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