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So-so Uptick in Spending Has Retailers Discounting -- Income Growth Slow but Meets Expectation

Posted on: Friday, 23 December 2005, 21:00 CST

By Martin Crutsinger Associated Press

WASHINGTON - Consumers increased spending moderately in November even though the growth in their incomes slowed a bit, raising doubts about how strong the Christmas sales season will be.

The Commerce Department said personal spending rose by 0.3 percent last month, slightly below the 0.4 percent gain that Wall Street had been expecting. Incomes rose by 0.3 percent last month, right in line with expectations.

The holiday shopping season has turned in a mixed performance so far with the nation's retailers increasing discounting in the final days before Christmas in the hopes of making up for slower-than- expected sales since Thanksgiving.

In other news, a closely watched gauge of future economic activity posted a solid increase in November, helped by improving labor conditions. The Conference Board reported that its Index of Leading Economic Indicators rose by 0.5 percent last month following an even larger 1 percent increase in October.

Seven of the 10 forward-pointing indicators that make up the index showed signs of strength in November, led by declines in the number of newly laid-off workers filing claims for unemployment benefits.

Also, the Labor Department said that there was another drop in unemployment claims last week, which fell to 318,000, down by a better-than-expected 13,000 from the previous week.

The total claims included 1,400 related to hurricanes Katrina, Rita and Wilma, bringing total job losses from the three storms to 603,600.

The report on incomes and spending had good news on inflation. An inflation gauge tied to personal consumption fell by 0.4 percent, the biggest one-month decline on record. Excluding food and energy, inflation was up a slight 0.1 percent in November.

For the past 12 months, inflation excluding food and energy has risen 1.8 percent, the best performance since March of 2004, while overall inflation is up 2.7 percent.

The personal consumption inflation index is favored by the Federal Reserve, which has boosted interest rates 13 times in an effort to make sure that rising energy prices do not spill over into more widespread inflation problems.

The 0.3 percent rise in incomes followed a stronger 0.5 percent gain in October. Income growth last month was supported by a sharp rebound in job growth with businesses adding 215,000 workers to their payrolls following two weak months which saw heavy job layoffs in the Gulf Coast states affected by the hurricanes.

The 0.3 percent rise in consumer spending was an even larger 0.7 percent gain when inflation was factored out. That inflation- adjusted increase was the biggest rise since a 1.1 percent jump in July, a month when consumers spent heavily on new cars in response to attractive discount offers.

Disposable incomes, the amount Americans have to spend after paying taxes, rose by 0.3 percent in November after a 0.4 percent October increase.

The savings rate, the amount left over after spending and taxes, remained in negative territory in November at minus 0.2 percent, the same as October. That meant that consumers were dipping into previous savings or borrowing to finance spending.

The overall economy grew at a solid 4.1 percent rate in the July- September quarter, the best showing in 1 1/2 years, but economists are looking for growth to slow significantly in the final three months of this year, reflecting a slowdown in consumer spending.

Many analysts believe the gross domestic product will rise at a rate of just 3 percent to 3.5 percent in the October-December quarter.

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The holiday shopping season has turned in a mixed performance so far with the nation's retailers increasing discounting in the final days before Christmas in the hopes of making up for slower-than- expected sales since Thanksgiving.

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Source: Commercial Appeal, The

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