Personal Spending, Income Up in Month; Firms Slash Outlays

WASHINGTON —  Americans’ personal spending climbed 1.1% in November, reversing part of a record decline the month before, the government said Thursday. Personal income rose 0.3%.

The spending increase followed a 2.1% plunge in October, the biggest decline in 27 years of record keeping, the Commerce Department said.

The Commerce Department also reported Thursday that U.S. businesses, faced with a sluggish economy and the loss of investment tax incentives, plan to increase capital spending 0.2% next year. The report said businesses slashed investment spending by an estimated 2.6% this year, the sharpest drop since the depths of the recession in 1982.

In September, personal spending shot up 2% with the huge swings attributed to auto sales, which soared in late summer as a result of attractive cut-rate financing offers only to fall after the incentive programs ended.

The 0.3% advance in personal income was slightly below a 0.4% October rise and continued a pattern of moderate growth in incomes.

Analysts were not too impressed with the 1.1% rebound in consumer spending, noting that much of the strength came in the services sector, which includes spending on such things as housing costs.

Cynthia Latta, an economist with Data Resources Inc., said that apparently a colder-than-normal November had increased utility costs, and brokerage fees were rising as investors rushed to reap capital gains profits before the new tax law takes effect.

“We shouldn’t be shouting over the 1.1% increase in spending,” she said. “It is simply consumers trying to keep themselves warm and financially sound. Spending on durable and non-durable goods was much more modest.”

But Maury Harris, chief economist of Paine Webber, in New York, said the growth in income has been sufficient to support continued increases in consumer spending in the months ahead.

“I think we will have a decent Christmas season,” he said. “Consumers have been a little slow at department stores so far, but I think they will end up spending a lot of money before Christmas Day.”

Disposable, or after-tax, income rose 0.2% in November, matching the gains made in October and September.

Americans’ personal savings rate, or savings as a percentage of disposable income, declined to 2.8% in November from 3.6% in October.

The government survey of business spending plans found that managers expected to spend $376.2 billion on expansion and modernization plans this year, after adjusting for inflation.

And in its first look at 1987, the Commerce Department’s survey estimated that spending would total $377.1 billion, only slightly higher than this year.

This weak performance contrasted with strong gains of 15.8% in 1984 and 8.7% in 1985 as the country was recovering from the 1981-82 recession.

American manufacturing has been battered in the past two years by stiff foreign competition. With factory operating rates declining, business executives have seen little need to increase capacity.

The recently passed overhaul of the tax law has further depressed business spending because it raises business taxes by removing a variety of investment tax breaks.