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Personal Incomes See Biggest Dip in Decade
by Martin Crutsinger    AP News
Entered into the database on Monday, February 28th, 2005 @ 23:51:21 MST


 

Untitled Document WASHINGTON Feb 28, 2005 — Personal incomes which had been bolstered by a large stock dividend payment in December plunged 2.3 percent in January, the sharpest decline in more than a decade. Consumer spending was flat, the government reported Monday.

The Commerce Department said the sharp January drop in incomes followed a record 3.7 percent jump in incomes in December with both months heavily influenced by a $3 per share dividend payment that computer software giant Microsoft made on Dec. 2.

Meanwhile, the number of new single-family homes sold in January fell 9.2 percent, the agency said in a second report.

The worse-than-expected performance pushed new home sales down to 1.11 million units at a seasonally adjusted annual rate in January compared to a revised December rate of 1.22 million units. Last week, the National Association of Realtors reported that sales of existing homes and condominiums had fallen as well in January, dipping a slight 0.1 percent to a seasonally adjusted annual rate of 6.8 million units.

Both sales of new and existing homes set all-time highs in 2004 for the fourth consecutive year. But economists are forecasting a retreat from those highs this year as mortgage rates are expected to start rising.

Without the huge $32 billion dividend payment by Microsoft, personal incomes would have shown steadier gains of 0.6 percent in December and 0.5 percent in January.

Personal spending was unchanged in January after having risen by 0.8 percent in December. This reflected the fact that demand for autos sagged last month as dealers removed attractive incentive offers they had used to spur end-of-the-year sales.

Consumer spending, which accounts for two-thirds of total economic activity, is expected to post solid gains again this year, bolstered by continued improvements in employment, but not quite up to the pace in 2004. Last year, consumer spending rose by 3.8 percent, helping to push overall economic growth up by 4.4 percent last year.

Economists are looking for both overall economic growth and consumer spending to slow a bit this year as continued interest rate increases from the Federal Reserve dampen consumer demand. The Fed hiked interest rates for a sixth time in early February and a seventh quarter-point increase is expected when Fed policy-makers next meet on March 22.

The report on new home sales showed weakness in every part of the country except the West, where sales rose by 5.6 percent to an annual rate of 338,000 units.

The biggest decline was a record 40.3 percent plunge in the Midwest where sales dropped to an annual rate of 145,000 units. Sales fell 17.1 percent in the Northeast to an annual rate of 63,000 units and were down 3.3 percent in the South to a rate of 560,000 units.

The drop in new home sales was accompanied by a fall in prices. The median new home price the point where half the homes sold for more and half for less was $199,400 in January, down 13.2 percent from a median sales price of $229,700 in December. It was the lowest new home price since a median of $196,000 in December 2003.

For January, consumer spending was held back by a big drop in demand for durable goods such as cars. It was the weakest showing since a 0.3 percent decline in June of last year.

After taking account of inflation, consumer spending actually fell by 0.2 percent in January.

Disposable, or after-tax incomes, fell by 2.6 percent last month after having shot up by 4.1 percent in December, changes that were also influenced by the Microsoft stock dividend payment.

The drop in disposable incomes pushed the savings rate down to 1 percent in January. Savings had jumped to 3.6 percent of disposable income in December, bolstered by the dividend payment, after having been at 0.5 percent for three straight months before that.


Copyright 2005 The Associated Press.