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US consumer spending slows to 0.2 percent gain

By Martin Crutsinger AP Economics Writer | 11/15/2013, 10:33 a.m.
Consumer spending rose 0.2 percent in September, after at 0.3 percent gain the previous month, the Commerce Department reported Friday.

WASHINGTON (AP) - U.S. consumers slowed their spending in September, even as overall income grew at solid pace for the second straight month.

Consumer spending rose 0.2 percent in September, after at 0.3 percent gain the previous month, the Commerce Department reported Friday. Americans cut spending on long-lasting manufactured goods 1.3 percent. That partly reflected a drop in auto sales. Labor Day holiday weekend auto sales were counted in August.

Income rose 0.5 percent in September, matching the August gain. The increases in both months were the strongest since February. September’s gain was helped by the end of government furloughs, which had reduced federal pay in the previous two months.

The gain in income and the slowdown in spending meant consumers saved 4.9 percent of their after-tax income, up from 4.7 percent in August.

The government reported Thursday that the overall economy grew at an annual rate of 2.8 percent in the July-September quarter but the rate of spending gain was slower in the third quarter than the first. Spending grew at a 1.5 percent rate in the third quarter, down from a 1.8 percent increase in the second quarter.

A measure of inflation closely followed by the Federal Reserve rose by just 0.9 percent over the past year, far below the Fed’s 2 percent inflation target. That means the central bank will be able to keep providing support to the economy in the form of $85 billion per month in bond purchases without having to worry about inflation pressures.

Spending and income growth have both been weak for much of this year, a fact which has weighed on overall economic growth.

The third quarter performance was the slowest in two years although spending activity was held back by services spending which was basically flat. That reflected a cooler summer which held down spending on electric utility bills.

Economists are concerned that the overall economy will slow in the current October-December period in part because consumers are expected to cut back on their purchases because of the uncertainty caused by the 16-day partial government shutdown. Many are forecasting that growth will slow to between 1.5 percent and 2 percent this quarter.

Consumer confidence has dropped in three of the four months since June. Falling confidence can cause Americans to spend less, which would be a blow for the economy, especially as retailers’ all-important holiday shopping season gets underway.