Consumer Income Rises, But Manufacturing Slips New Reports Send Mixed Signals About Health Of U.S. Economy

Moderate income growth at year end helped U.S. consumers enter 1998 in good shape but manufacturing’s vigor already is starting to slip because of the Asian financial crisis.

Americans’ personal income rose 0.4 percent in December, with spending nearly keeping pace by rising 0.3 percent during the holiday shopping season, the Commerce Department said Monday. However, both income and spending grew at slower rates than during the two previous months.

Also, a separate report from the National Association of Purchasing Management - one of the first out on January - showed growth decelerating in the manufacturing economy. And a third report showed construction spending stagnant at the end of 1997.

Economists said the mix of factors, both weak and strong, should keep Federal Reserve policy-makers, meeting for the first time this year today and Wednesday, from either raising or lowering short-term interest rates.

“Income growth is providing some momentum to the economy but the Asian situation appears to be cooling demand in the industrial sector and keeping a lid on prices,” said economist Lynn Reaser of NationsBank Corp. in Jacksonville, Fla.

Eventually, probably during the second half of the year, the central bank will decide to cut interest rates to offset weakness spilling over from Asia, Reaser said.

In a sign the Asian crisis already is pinching, the purchasing manager’s trade group, in New York, said its index declined for the third consecutive month. Index components indicated export orders were falling, as were prices paid by manufacturers.

For the year, incomes rose 5.8 percent to $6.87 trillion, a bit faster than spending, which increased 5.4 percent to $5.49 trillion. But a big 11.4 percent increase in tax and fee payments to government meant disposable, or after-tax, income rose just 5 percent, somewhat slower than spending.

To make up the difference, Americans saved less - just 3.8 percent of disposable income.

Economists, though, weren’t alarmed. They said many Americans were merely spending a portion of the capital gains they reaped during the past three years.