Originally created 11/29/97

Americans' income continues to grow



WASHINGTON -- Americans' income grew at a healthy pace last month and people were spending the extra money rather than saving it -- good news for stores as the holiday shopping season kicked off Friday.

Capping 12 straight months of growth, personal income rose 0.5 percent in October to a seasonally adjusted annual rate of $6.97 trillion, the Commerce Department said. In September, personal income rose 0.3 percent.

"Consumers should have plenty of spending power this holiday season," especially since inflation has remained low, said Mark Vitner, an economist with First Union Corp. of Charlotte, N.C.

Most analysts are predicting an increase in holiday sales compared to last year, which merchants found disappointing. For stores, holiday shoppers can account for as much as half of a year's sales and profits.

On Wall Street, the Dow Jones average rose rose 28.35 to close at 7823.13 Friday. Bond prices dropped, bringing the yield on benchmark 30-year Treasury bonds up to 6.05 percent from 6.04 percent on Wednesday before Thanksgiving.

With a shortened trading session and most investors enjoying a four-day holiday weekend, Friday's market activity was not expected to indicate any significant trends, however.

Americans' recent personal income gains stem from low unemployment that has created a tight labor market favoring job seekers and pushing wages up. The nation's unemployment rate has been at or below 5 percent since last winter, the longest such stretch in 24 years.

Disposable personal income -- income less taxes -- also advanced 0.5 percent in October, and consumers tended to spend the extra cash rather than save it.

In October, spending growth matched income gains, rising 0.5 percent to a seasonally adjusted annual rate of $5.58 trillion.

That kept the savings rate steady at a low 3.6 percent.

In September new income and spending also ran neck and neck, increasing by 0.3 percent.

Wages and salaries, the largest component of income, rose 0.6 percent in October, and transfer payments such as Social Security and welfare increased 0.3 percent.

All other categories -- except farm income -- rose, too. These included business income, rental income, interest and dividends.

Most of the strength in consumer spending came from a 0.8 percent increase in the purchase of services. Spending on non-durable goods, such as food and clothing, rose 0.3 percent. But spending on durable goods -- big ticket items from cars to refrigerators -- fell 0.4 percent.

That's because with the economy strong for so long, many people have already bought the new appliances and vehicles they wanted, said Lynn Reaser, an economist with Barnett Banks Inc. in Jacksonville, Fla.

"We may see that reflected in Christmas sales, with people spending more dollars on a trips to Disney World and things like that than spending on new cars for Christmas," said Reaser.