Propped up by onetime farm subsidy payments from Congress and union contract signing bonuses in two large manufacturing industries, personal income in October scored its biggest gain in more than five years, the Commerce Department reported yesterday.
Personal income rose at an annual rate of 1.3 percent in October, compared with no gain in September. It was the sharpest increase since April 1994, when personal income also rose at a 1.3 percent rate. Without the onetime payments, however, personal income would have risen at a 0.5 percent annual rate in October.
The department also reported consumer spending rose at an annual rate of 0.6 percent in October, up slightly from the 0.5 percent increase in September but still below the 0.8 percent rise in August.
The income and spending numbers for October were both well above analysts' predictions and signaled that the economy may be headed toward the longest expansion in U.S. history. The record for expansion is the period from 1961 to 1969, which includes the buildup for the Vietnam War. That mark will be surpassed if the current expansion continues through February.
The Commerce Department report was good news for retail companies, which yesterday began the biggest shopping season of the year. The day after Thanksgiving traditionally is one of the busiest shopping days of the year, marking the unofficial start of the Christmas season for retailers.
In its report, the Commerce Department said personal income figures were affected by a number of special factors. "In October, personal income was boosted $41.4 billion at an annual rate by recently authorized federal agricultural subsidy payments and $5.9 billion at an annual rate by union contract signing bonuses in several manufacturing industries," the department said. The biggest contract payments were in the aerospace and auto industries, where thousands of union workers received signing bonuses of up to $1,350 each for approving new contracts.
The department said the October snapshot also was taken against an artificially depressed set of numbers in September. Personal income that month was reduced by about $18 billion by uninsured losses to residential and business property from Hurricane Floyd.
The rise in income was accompanied by an October increase in the nation's annual savings rate, which rose to 2.3 percent in October, from 1.5 percent in September, the lowest level since the department began tracking the figures in 1959.
Statistically, the income and spending reports capped off a good week for the economy. Last Wednesday the Commerce Department reported that the nation's gross domestic product, which is the underlying measure of the nation's economic strength, had risen at a 5.5 percent rate in the third quarter, stronger than the government's estimate a month earlier.
At the same time, inflation was reported to have risen at a 1.7 percent annual rate during the July-to-September quarter, an extremely low number for the kind of expansion the economy is experiencing. Take away volatile food and energy prices for that period and third-quarter inflation rose at a 1.2 percent rate.
The inflation rate remained low despite an unemployment rate of about 4 percent and signs of an increasingly tight labor market.
The tight labor markets have been largely offset by increases in productivity. Economists this week predicted that as a result of the greater than expected growth in the GDP there would also be a greater than expected growth in productivity. Major increases in productivity have been credited with keeping inflation at bay despite the tight labor markets.
CAPTION: INCOME TAKES A BIG JUMP
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