Consumer spending up 0.1%, least in 8 months
WASHINGTON — Consumer spending in September posted the smallest gain in eight months, a sign that shoppers grew cautious at the end of the third quarter.
Americans increased their spending just 0.1 percent, the Commerce Department said Friday, the weakest showing since they cut spending in January. Income growth inched up 0.1 percent, which was the smallest amount in four months. Wages and salaries were flat after two months of big gains.
“There was a definite loss of momentum as we were coming out of the third quarter, but don’t worry too seriously about that,” said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Fla., who correctly projected the spending advance. “The
job growth is positive, but we’ll need to see better wage growth down the line.”
Spending totals can be influenced by price changes, and falling gasoline prices last month were a big reason for the weaker spending figure. Adjusted for inflation, consumers spent 0.2 percent more in September.
Americans snapped up cars and other large manufactured goods, the report showed, and spending on services also rose at a healthy clip. Many economists were reassured that Americans are still willing to open their wallets and pocketbooks, even if at a more modest pace.
“Consumer spending is still healthy, but it slowed as the third quarter came to an end,” said Jennifer Lee, an economist at BMO Capital Markets.
The overall economy slowed sharply in the JulySeptember quarter to an annual rate of just 1.5 percent, less than half the 3.9 percent rate seen in the April-June period. But that was mainly because businesses trimmed their stockpiles. Consumer spending was solid.
Spending is closely watched because it accounts for 70 percent of economic activity.
Economists are forecasting that it will remain on track in the fourth quarter, reflecting further gains in employment that should give households more income to spend. Consumers
are also benefiting from declines in energy prices, which give them more money to spend on other items.
The saving rate edged up slightly to 4.8 percent of after-tax income in September, compared with 4.7 percent in August.
The Federal Reserve this week left its benchmark interest rate at a record low near zero, where it has been for the past seven years. However, in a statement, Fed policymakers said they would be looking at the progress made on its employment and inflation objectives in deciding whether to begin raising rates at its “next meeting.”
It marked the first time in the Fed’s seven years of low interest rates that officials have suggested they could raise rates at the next meeting, Dec. 15-16.
One factor influencing that decision will be the performance of the Fed’s favorite gauge of inflation, which is linked to consumer spending.
In Friday’s report, overall
inflation fell by 0.1 percent in September, reflecting the drop in energy prices. Over the past year, this inflation gauge is up just 0.2 percent, far below the Fed’s 2 percent target. Excluding volatile food and energy, prices are up 1.3 percent, still below the 2 percent target.
Americans felt more confident in October, a good sign for an economy driven by consumer spending, according to a University of Michigan survey.
The university said Friday that its index of consumer sentiment rose to 90 after dropping to 87.2 in September from 91.9 in August.
Richard Curtin, chief economist for the university’s consumer surveys, said the entire gain was generated by improved spirits among lower-income households. Wealthier consumers were a bit less confident, worried about gyrations in financial markets that reflect deteriorating economic conditions overseas.
Bricklin Dwyer, an economist
with BNP Paribas, said the overall reading “suggests a relatively healthy level of consumer optimism.”
Households felt more favorably about their financial prospects than at any time since 2007. Their expectations for inflation are at the lowest level in a quarter century.
In its report on third-quarter economic growth Thursday, the Commerce Department said consumer spending rose at a solid 3.2 percent annual pace from July through September. Curtin said consumers are likely to spend at a healthy pace through 2016.
But they still want to see discounts when they go shopping, he noted.