Consumer incomes and spending both failed to keep pace with inflation last month as layoffs cut into wages and hard-pressed households reduced their purchases of new cars and more expensive gasoline, the Commerce Department reported yesterday.
The consumer spending report indicated that the average for the fourth quarter would show a decline from the July-September period, reinforcing suggestions that the nation is facing a decline in the gross national product, analysts said. Consumer outlays for goods and services account for about two-thirds of the GNP.
Wage and salary income fell $9.3 billion with the decline spread fairly evenly among industries producing goods, those distributing them and those providing services, the department said.
Income from other sources rose, however, so that total personal income increased by $5.7 billion. Transfer payments, for example, rose $7.2 billion reflecting higher payments of unemployment benefits, among other things.
But the gain in total personal income was only 0.1 percent, considerably less than the 0.6 percent rise in consumer prices last month. Meanwhile, tax and social insurance payments changed little. That meant that after adjustment for taxes and inflation, real disposable personal income fell for the third month in a row.
When real take home pay goes down, sooner or later consumer spending usually does, too, but after digesting the latest figures, one bank economist said, "I see flatness in consumer spending, but I do not see pervasive weakness."
In line with that thinking, Federal Reserve Chairman Alan Greenspan on Wednesday pointed to new car sales as being unexpectedly strong this month, given the enormous drop in consumer confidence shown in surveys.
A significant portion of the drop in spending was due to a decline in auto purchases, but figures for the first 20 days of November indicated sales have stabilized.
While purchases of cars and other long-lasting items fell in real terms last month, an even larger drop was recorded for so-called nondurable goods such as gasoline, home heating oil and food, a Commerce Department official said. Consumers have maintained their spending for gasoline at previous levels, but because the price has gone up sharply, the same amount of money is buying fewer gallons.
Consumer spending for food has shown virtually no growth over the past three years, and Commerce economists have attempted to verify the official figures in a variety of ways and all of the checks have indicated they are correct. "It is very unusual to see this sort of pattern in food consumption," one official said.