Recession and Economic Recovery and Economy

September consumer spending weakens while incomes dip

November 1, 2010

Americans slowed their spending in September to the weakest pace in three months and their incomes fell for the first time in 14 months.

Personal spending rose at an annual rate of 0.2 percent in September, the Commerce Department said Monday. That's below the 0.5-percent gains recorded in July and August.

Incomes fell 0.1 percent in September, following a 0.4-percent rise in August that had been pushed higher by the return of extended unemployment benefits.

The weak growth in spending and incomes underscored how fragile the economy remains. Consumers facing high unemployment and slow job growth remain reluctant to spend.

The drop in incomes was the first decline since incomes fell 0.3 percent in July 2009. The August gain had been skewed by the reinstatement of an extended unemployment benefits program, which had temporarily lapsed in July after Republicans had blocked an extension.

Consumer spending is watched closely because it accounts for 70 percent of total economic activity.

The government reported Friday that the economy grew at an annual rate of 2 percent in the July-September quarter. That's only slightly better than 1.7-percent growth in the April-June quarter.

Many economists believe that growth in the current quarter will be little changed from the third quarter.

Consumer spending had helped boost third-quarter growth. It was the best showing since a 4.1-percent rise in consumer spending at the end of 2006, before a severe recession hit.

However, Monday's report suggested the strength occurred in July and August and that spending slowed considerably in September.

The savings rate fell to 5.3 percent in September, the lowest rate since August 2009. But it is still well above the 2.1-percent average savings rate for all of 2007.

An inflation gauge tied to consumer spending rose a slight 0.1 percent in September and was flat after excluding volatile food and energy.

In response to the weak economy, the Federal Reserve this week is expected to announce a program to buy Treasury bonds. The effort is designed to drive interest rates lower and spur economic activity.

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