Consumers spend more than forecast

September total up 0.8%; savings fall

Consumer spending in the U.S. climbed more than forecast in September, a sign the biggest part of the economy was picking up as the quarter drew to a close.

Household purchases, which account for about 70 percent of gross domestic product, rose 0.8 percent, the most since February, after advancing 0.5 percent in August, the Commerce Department reported Monday. The median estimate in a Bloomberg survey of 71 economists called for a 0.6 percent gain. Incomes climbed 0.4 percent, the most since March.

The acceleration in spending may help the world’s largest economy overcome a slowdown in exports and business investment as global growth slackens and concern mounts about the so-called “fiscal cliff.” At the same time, a drop in savings to finance purchases indicates bigger gains in employment are required to provide the income needed to sustain spending.

“The strength in September gives consumer spending a good lift for the fourth quarter,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn. “The housing market seems to have turned. Consumers are clearly feeling better and are going out and spending a bit more.”

A pickup in consumer spending helped lift economic growth in the July-September quarter to a 2 percent annual rate. While that is faster than the 1.3 percent rate in the April-June period, it’s still too weak to create enough jobs to rapidly lower the unemployment rate.

Paul Dales, senior U.S. economist at Capital Economics, said weak income growth would likely hold back spending in the coming months. Consumers can only cut their savings by so much, he cautioned. And if Congress fails to reach a budget deal by the end of the year, taxes will rise in January. That could also dampen consumer spending.

“Faced with the prospect of major tax hikes in the New Year, [consumers] will soon become more cautious,” Dales said.

The spending gain in September reflected in part rising consumer confidence. The University of Michigan reported Friday that its final consumer sentiment index for October had hit a five-year high. Falling gasoline prices and a slightly better job market were credited with lifting consumers’ outlook.

Still, households trimmed their savings to finance the increase in purchases, Monday’s report showed. The savings rate dropped to 3.3 percent of after-tax incomes in September, down from 3.7 percent in August and 4.1 percent in July.