Consumer spending and incomes rose more than expected at the start of the year, but the gains were seen as fleeting in light of the recession and the waves of layoffs battering Americans.
Two other reports Monday on manufacturing and construction also showed little reason for optimism. Analysts said any start to an economic rebound is at best months away, with the most pessimistic predicting a sustained recovery won’t begin until next year.
Wall Street plunged anew after a sobering earnings report from American International Group showed the insurance giant lost $61.7 billion in the fourth quarter, the biggest quarterly loss in U.S. corporate history. In response, the government unveiled a revamped rescue package that will provide AIG with another $30 billion in taxpayer money if needed.
The Dow Jones industrial average fell below 7,000 for the first time in 11 years. The credit crisis and recession have slashed more than half of the Dow’s value since it hit a record-high over 14,000 in October 2007. The Dow lost nearly 300 points to 6,763.29.
The Commerce Department said consumer spending rose 0.6 percent in January, the first increase after a record six straight monthly declines, and slightly better than the 0.4 percent rise economists had expected.
Incomes also showed more strength than expected, rising 0.4 percent, although that gain came primarily from annual pay raises for federal workers and a 5.8 percent cost-of-living increase for the 50 million people receiving Social Security benefits.
Private sector wages and salaries, the key component of incomes, actually fell for a fifth straight month. That reflected the wave of layoffs occurring as the recession, already the longest in a quarter-century, intensifies.
Employers cut a net total of 598,000 jobs in January, the most in more than three decades, as the unemployment rate shot up to a 16-year high of 7.6 percent. Economists and the government expect the jobless rate will keep rising in the months ahead.
Because of all the problems facing the economy, the January rebound in consumer spending was not seen as the start of an upward trend.
“Household wealth continues to fall rapidly, employment is falling steeply and consumer sentiment is at or near all-time lows. These are not the ingredients of a consumer recovery,” said Nigel Gault, chief U.S. economist at IHS Global Insight.
Copyright 2009 AP