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 per cent, the Commerce Department said Friday, the weakest showing since they cut spending in January. Income growth inched up 0.1 per cent, which was the smallest amount in four months. Wages and salaries were flat following two months of big gains.
Still, spending totals can be influenced by price changes, and falling gasoline costs last month were a big reason for the weaker spending figure. Adjusted for inflation, consumers spent 0.2 per cent 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 July-September quarter to an annual rate of just 1.5 per cent, less than half the 3.9 per cent 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 per cent 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 per cent of after-tax income in September, compared to 4.7 per cent 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 that they could raise rates at the next meeting, which will occur Dec. 15-16.
One factor influencing that decision will be the performance of the Fed’s favourite gauge of inflation, which is linked to consumer spending.
In Friday’s report, overall inflation actually fell by 0.1 per cent in September, reflecting the drop in energy prices. Over the past year, this inflation gauge is up just 0.2 per cent, far below the Fed’s 2 per cent target. Excluding volatile food and energy, prices are up 1.3 per cent, still below the 2 per cent.
AP Economics Writer contributed to this report.