Superstorm Sandy hits US consumer spending, income

Data indicates Q4 growth would be weak: analyst

WASHINGTON, Nov 30, (RTRS): US consumer spending fell in October for the first time in five months as superstorm Sandy choked off car sales, suggesting slower economic growth in the fourth quarter.

The Commerce Department said on Friday consumer spending fell 0.2 percent after a 0.8 percent increase in September. It said Sandy had impacted on income growth last month, but it had made adjustments to wages for storm-related work interruptions.

Economists polled by Reuters had expected consumer spending, which accounts for 70 percent of US economic activity, would be flat last month. While the storm slammed the brakes on automobile purchases, the drop in overall spending was in part a reflection of weak economic fundamentals.

“The report reinforces the fact that US growth in Q4 would be weak,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

US government debt prices rose modestly on the data, while the dollar pared losses versus the euro. Stock futures held steady at higher levels.

When adjusted for inflation, consumer spending fell 0.3 percent, the first decline since June, after rising 0.4 percent the prior month.

It was also the largest decline since September 2009 and implied growth in consumer spending this quarter would struggle to exceed the third-quarter’s 1.4 percent annual pace, which was the slowest in more than a year.

While the economy grew 2.7 percent in the third quarter after advancing 1.3 percent in the prior three months, much of the boost came from the restocking of goods and robust government spending. That is likely to be lost in the final three months of the year.

Growth could also be pressured by the lingering effects of the storm and automatic deep cuts to government spending and tax increases that could drain $600 billion from the economy early next year unless Congress and the Obama administration agree on a less-severe plan to cut budget deficits.

Income was unchanged in October for the first time since April and followed a 0.4 percent gain in September. The department said private wages and salaries fell, reflecting work interruptions caused by Sandy.

The amount of income at the disposal of households after inflation and taxes dipped 0.1 percent after being flat in September. Despite weak income growth, the saving rate rose to 3.4 percent from 3.3 percent the prior month.

A29 cent drop in gasoline prices helped to keep inflation contained in October. A price index for personal consumer expenditures nudged up 0.1 percent after rising 0.3 percent in September.

In the 12 months through October, the PCE index rose 1.7 percent, the largest gain since April, after increasing 1.6 percent in September.

A core measure that strips out food and energy costs gained 0.1 percent after a similar rise in September. In the 12 months to October, the core PCE index increased 1.6 percent after advancing by the same margin in September.

The Federal Reserve has a 2 percent inflation target and the moderate rise in core inflation should offer comfort to the central bank, which has been buying $40 billion in mortgage-backed debt each month in an effort to push borrowing costs lower and spur faster job growth.

New US single-family home sales fell slightly in October and sales for the prior month were revised sharply lower, casting a faint shadow over one of the brighter spots in the US economy.

The Commerce Department said sales dropped 0.3 percent last month to a 368,000-unit annual rate, while September’s sales pace was revised to 369,000 from 389,000.

The housing sector has been a point of relative strength this year in an economy beset by flagging business confidence and cooling demand from abroad.

A report last week showed a surprisingly sharp gain in home resales in October, while data this week showed prices for single-family homes have risen continuously since February.

Economists expect home construction to add to economic growth this year for the first time since 2005.

Separately, the Federal Reserve said in its anecdotal Beige Book report the market for single-family homes improved in most areas of the nation from late-October through mid-November.

The report, based on comments from the Fed’s business contacts, said the economy had grown at a “measured” pace over that period, with consumer spending expanding moderately but manufacturing activity softening. Hiring remained modest, it said. Weakness in business spending has been restraining growth, but housing has helped offset that. Consumer confidence has also been more bullish.

Home sales report showed the median sales price for a new home in October was 5.7 percent higher than a year earlier, but the pace of year-over-year price gains slowed for a second straight month.

US home-builder stocks fell on the data, even as broad market indexes rose slightly. Some analysts suggested the decline in sales in October might be partially due to a mammoth storm that slammed into the US East Coast at the end of October. New sales plunged 32.3 percent in the Northeast, which bore the brunt of the storm.

However, the Commerce Department said the storm did not affect data collection at all and its impact on sales was likely “minimal.”