WASHINGTON — Consumers in the
United States, lured out to the stores by the
warmest January in more than a century, spent at a
rapid clip that outpaced their incomes. Construction
activity, however, slowed to the smallest gain in
seven months, indicating the U.S. housing boom is
easing.
The Commerce
Department reported Wednesday that personal spending
shot up by 0.9 per cent, the strongest gain in six
months, while incomes rose by a solid 0.7 per cent.
But in a
separate report, the department said that
construction spending rose by a tiny 0.2 per cent in
January, the weakest gain in seven months and far
below the 1 per cent increase Wall Street had been
expecting.
A big reason for
the slowdown was a tiny 0.1 per cent increase in
private home building, far lower than the 0.9 per
cent surge in December. Economists believe housing,
which has been setting sales records for five
straight years, is set to slow this year. Sales of
both new and previously owned homes fell in January
despite the unusually warm weather.
The bigger rise
in spending compared to incomes kept the savings
rates in negative territory at a minus 0.7 per cent.
That meant Americans spent more than their after-tax
incomes, which forced them to dip into prior savings
or increase their borrowing.
For all of 2005,
the savings rate registered a negative 0.4 per cent,
the first time the savings rate has been in negative
territory for an entire year since the Depression
years of 1932 and 1933.
The small 0.2
per cent increase in building activity left
construction spending at a seasonally adjusted
annual rate of $1.163 trillion in January, a record
level. The construction figures are not adjusted for
inflation.
The 0.1 per cent
rise in private home building was the weakest
showing since spending on home construction actually
fell by 0.4 per cent last June.
Economists say
that this is exactly the wrong time for the savings
rate to dip into negative territory with the
impending retirement of 78 million baby boomers.
Part of the
reason for the dip is that Americans who own homes
felt more wealthy in recent years given the huge
increases in home values. That spurred them to spend
more of their paychecks since their net worth was
increasing with their rising home values.
JAMES TURK "I AM TALKING
ALL OF IT... ITS A MOUNTAIN OF DEBT"
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