Spending by Consumers Drop to Five Month Low

Consumer spending in the U.S. fell during October for just the first time in the past five months. Growth in income stalled, which suggested that slower economic growth would take place during this year’s last quarter. On Friday, the Department of Commerce said consumer spending dropped 0.2% following a 0.8% unrevised increase for September.

The Commerce Department said it was unable to quantify Superstorm Sandy’s impact, but said it had made adjustments in areas were source data was still not available or did not show any reflection of the effects from the storm.

The fierce storm that slammed into the East Coast late in October halted automobile sales but the fall in consumer spending during October was a reflection of the fundamentally weak economy.

Economists had predicted that consumer spending for the month of October would be flat. U.S. consumer spending accounts for nearly 70% of all activity in the U.S. economy.

When spending was adjusted for current inflation, it fell 0.3%, the first decline in five months after increasing in September by 0.4%. The decline was also the largest since September of 2009. The results implied that consumer spending growth this quarter would struggle to exceed last quarter’s annual pace of 1.4%, which was the slowest pace in over 12 months.

The economy was up during the third quarter by 2.7%, after increasing only 1.3% during the second quarter however, a great deal of that, increase was due to restocking goods and big government spending. That will likely be lost during the final quarter of this year.

October incomes were unchanged for only the first time since last April. Private salaries and wages dropped which reflected work stoppages due to Superstorm Sandy.

 

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