Tuesday, October 30, 2012
Associated Press
WASHINGTON
Americans increased their spending in September at twice the rate that their income grew, a sign of confidence in the economy. Still, consumers made up the difference by saving less for a third-straight month, a troubling trend.
The Commerce Department said Monday that consumer spending increased 0.8 percent in September from August. That followed a 0.5 percent gain in August and was the best showing since February.
Personal income rose 0.4 percent, an improvement from a slight 0.1 percent gain in August and the best gain since March. However, after adjusting for inflation and taxes, income was flat in September. That followed a 0.3 percent decline in August.
Consumer spending is important because it drives nearly 70 percent of economic activity.
A pickup in consumer spending helped lift economic growth in the July-September quarter to a 2 percent annual rate. Though that is faster than the 1.3 percent rate in the April-June period, it’s still too weak to create enough jobs to lower the unemployment rate rapidly.
Paul Dales, senior U.S. economist at Capital Economics, said weak income growth likely would hold back spending in the coming months. Consumers can cut their savings by only so much, he cautioned. And if Congress fails to reach a budget deal by the end of the year, taxes will rise in January. That also could dampen consumer spending.
“Faced with the prospect of major tax hikes in the New Year, [consumers] will soon become more cautious,” Dales said.