Incomes, spending post gains; new-home sales sink

WASHINGTON (AP) -- Personal incomes rose in November at the fastest pace in six months, while spending posted a second straight increase. But economists cautioned that the gains remain too weak to sustain a strong economic recovery.

The Commerce Department said Wednesday that personal incomes rose 0.4 percent in November, helped by a $16.1 billion increase in wages and salaries. It reflected the drop in unemployment that occurred last month.

The rise in incomes helped bolster spending, which rose 0.5 percent in November. Still, both the income and spending gains were slightly less than economists had expected.

After taking inflation into account, after-tax incomes are rising at an annual rate of just 1.2 percent. Economists say the recovery will require higher levels of income and spending. This is especially true at a time when households are using some income to shrink debt loads and rebuild savings, rather than spend.

"Annualized income growth of a little over 1 percent will not be enough to drive a significant recovery in consumption at the same time that debt needs to be paid down," said Paul Dales, U.S. economist at Capital Economics.

Contributing to the cautionary picture was a separate report Wednesday that sales of new homes plunged unexpectedly last month to the lowest level since April. November's sales fell 11.3 percent. And sales were down 9 percent from a year ago.

The median sales price of $217,400 was down nearly 2 percent from $221,600 a year earlier, though up about 4 percent from October's level of $209,400.

The report signaled that the housing market's recovery remains rocky.

Economists viewed the two reports as evidence that the recovery from a deep recession is proceeding in fits and starts, with households struggling with a bleak job market. At the same time, analysts said the economy is much improved from this time last year, when the nation was gripped by the financial crisis.

"People are continuing to pay down their debts, and they remain concerned about their financial futures and whether they will have jobs," said Sal Guatieri, an economist at BMO Capital Markets. "Santa's toy bag won't exactly be brimming with goodies this year, but at least he will show up, unlike last year."


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