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To: Johnny Canuck who wrote (36061)	2/1/2002 6:32:24 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 68115

Feature Story Friday, February 1, 2002 Personal Incomes Rise 0.4% As Outlays Ease, Lifting Recovery Hopes BY DONALD H. GOLD INVESTOR'S BUSINESS DAILY Personal incomes rose 0.4% in December, the first gain since August, the Commerce Department said Thursday in another positive sign for an economy struggling to get back on its feet. The government also reported that personal spending fell 0.2% for the month, due largely to fading interest in 0% auto loans. The data are more proof that the economy is starting to stabilize. -------------------------------------------------------------------------------- Image: Income, Spending -------------------------------------------------------------------------------- Year over year, incomes rose 2.7% and spending climbed 3.6%. For the month, wages and salaries, the biggest parts of income, rose 0.6% during the month. Perhaps most hopeful were signs of life at the nation's factories. Wages and salaries in that sector were about flat, after plunging $5.9 billion in November. But the strength in wages and salaries isn't clear-cut, says Evelina Tainer, chief economist at Lafayette, Calif.-based Econoday. When layoffs are announced, managers often let their least-experienced workers go. That pushes up the average earnings of the surviving work force, even without wage hikes. Right now, that appears to be happening, Tainer says. Still, she adds, December's gains were mostly real. Good Signs For Jobs? Others say the rise in incomes means the slumping labor market is starting to find its footing. "It's a good report," said Gary Thayer, chief economist at A.G. Edwards & Sons in St. Louis. Thayer says it's good that workers' incomes are rising faster than inflation. The personal consumption expenditure price deflator fell 0.2%. This key inflation gauge is known to be closely watched by Fed chief Alan Greenspan. That robust purchasing power should mean healthy consumer spending going forward — just what the recovery needs. Tainer says consumers may be in even better shape than these data show. Spending on nondurable goods in current dollars fell an annualized 0.1% in December, after November's 0.2% decline. But gasoline prices plunged in the last few months. The drop in fuel prices means the slowdown in spending was exaggerated. That doesn't mean everything's peachy with consumers. Typically, the stage for a recovery is set with low interest rates after the Fed cuts rates. This time, rate-sensitive sectors like housing and autos won't show the usual spurt out of the gate. The reason for this is they've been strong throughout the recession, said Tainer. Free financing pushed car sales through the roof. "We've gotten the bulk of auto sales gains out of the way even before the recovery began," she said. Much of those sales were borrowed from future business. And 2001 was a record year for housing. "That's very odd for a recession," she said. The result: no pent-up demand to add fuel to the recovery's fire. Still, Thayer says, this report, along with other recent releases, show the economy may be bottoming. In recent days, reports have emerged showing that GDP grew in the fourth quarter, while consumer confidence has rebounded. He also cites signs of life in the nation's factories as evidence in the Institute for Supply Management's purchasing index, released earlier in January, which posted a gain. The income and spending report also said the nation's saving rate rose to 1% from 0.5%. In fact, the gain may be much bigger, says Stuart G. Hoffman, chief economist at PNC Financial Services Group. He notes that the record pace of car sales exaggerates spending and the drain on savings. Why? The government records each sale as a drain on savings for the whole amount.