US consumer spending retreats in September, first setback in 8 months | iNFOnews | Thompson-Okanagan's News Source
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US consumer spending retreats in September, first setback in 8 months

In this Tuesday, Oct. 28, 2014 photo, customers check out at the new Century 21 Department Store in Philadelphia. The Commerce Department releases personal income and spending for September on Friday, Oct. 31, 2014. (AP Photo/Matt Rourke)
Original Publication Date October 31, 2014 - 5:40 AM

WASHINGTON - U.S. consumer cut spending in September for the first time in eight months, as incomes grew at the slowest pace this year. The figures underscore nagging economic soft spots that are expected to ease in the coming months.

Consumer spending slipped 0.2 per cent in September, the Commerce Department reported Friday, the weakest performance since an identical decline in January. Income edged up 0.2 per cent in September in the smallest monthly gain since a flat reading last December.

Shoppers appeared to take a breather after a big spending spree in August, which lifted consumer spending 0.5 per cent. Economists say September's downturn shouldn't last, especially amid a strengthening job market and a growing economy.

Spending, which accounts for 70 per cent of economic activity, has fallen only three times since the recession ended in 2009.

Economists blamed the weak September spending figure on falling energy prices and slower auto sales after a surge the previous month.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expects consumer spending to accelerate to a 2.5 per cent rate in the current October-December quarter, faster than the 1.8 per cent spending gain in the third quarter.

"The next couple of months will see spending pick up strongly as people start to spend their windfall from falling gas prices," Shepherdson said.

In September, spending on durable goods such as autos dropped a sizable 2 per cent after a 2.1 per cent jump in August. Spending on nondurable goods such as clothing, food and gasoline, was down 0.3 per cent, while spending on services such as doctor's visits and utilities posted a modest 0.2 per cent rise.

Lower prices at the pump mean consumers will have more to spend on other items.

Another reason for optimism is continued strong job growth, which pushed the unemployment rate down to a six-year low of 5.9 per cent in September. More people working means higher incomes and more fuel to drive consumer spending.

The small rise in income and the decline in spending in September resulted in a slight increase in the saving rate.

Savings as a percentage of after-tax income rose to 5.6 per cent in September, up from 5.4 per cent in August. The saving rate averaged 4.9 per cent in 2013, down from 7.2 per cent in 2012. That had been the highest level in nearly two decades as Americans worked to boost savings following the 2007-2009 recession.

Inflation as measured by a gauge tied to consumer spending edged up a slight 0.1 per cent in September, with prices up just 1.4 per cent over the last 12 months. That is well below the 2 per cent target for annual price increases which the Federal Reserve considers an optimal level for inflation.

The government reported Thursday that the overall economy, as measured by the gross domestic product, grew at an annual rate of 3.5 per cent in the July-September quarter. Analysts believe after five years of sub-par economic growth, the economy has finally accelerated, helped by solid employment growth.

Economists project growth of 3 per cent in the current quarter, helped by solid consumer spending. They are also forecasting 3-per cent growth in 2015, which would be the strongest level since 2005, two years before the start of the Great Recession.

The improving economy prompted the Federal Reserve this week to end its third round of bond purchases, which have pushed the central bank's balance sheet up by more than $3 trillion over the past six years. The Fed bought the bonds as a way to put downward pressure on long-term interest rates and provide an extra boost to the economy after it had slashed its key short-term rate to a record low near zero.

News from © The Associated Press, 2014
The Associated Press

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