Bloomberg News

Consumer Spending Cools in U.S. as Households Boost Savings

November 08, 2013

Consumer Spending Cools in U.S. as Households Boost Savings

Americans are spending on big-ticket items such as vehicles and homes. Photographer: Ty Wright/Bloomberg

Consumer spending in the U.S. cooled in September as households put more money in the bank heading into the partial government shutdown.

Household purchases, which account for about 70 percent of the economy, rose 0.2 percent after a 0.3 percent gain the prior month, Commerce Department figures showed today in Washington. The advance matched median forecast of 78 economists in a Bloomberg survey. The saving rate rose to the highest level of the year as incomes increased 0.5 percent for a second month.

The report is consistent with data yesterday that showed household spending rose in the third quarter at the slowest pace since 2011. While gains in housing and equity prices are helping Americans, the lack of faster hiring and depressed sentiment due to the 16-day federal government shutdown may restrain growth this quarter.

“Consumers are doing OK, they’re spending,” Joseph LaVorgna, chief U.S. economist in New York at Deutsche Bank Securities Inc., said before the report. “Big-ticket purchases are doing reasonably well.”

A report from the Labor Department today showed payrolls climbed by a greater-than-forecast 204,000 in October and the jobless rate climbed to 7.3 percent from an almost five-year low of 7.2 percent in September.

Projections for spending in the Bloomberg survey ranged from no change to a gain of 0.5 percent.

Income Forecast

The Bloomberg survey median called for incomes to rise 0.3 percent. The prior month’s income figure was first reported as a gain of 0.4 percent.

Gross domestic product grew at a 2.8 percent annualized rate from July through September, following a 2.5 percent pace in the prior quarter, a Commerce Department report showed yesterday. Consumer spending climbed 1.5 percent last quarter, weaker than projected.

Today’s figures showed that adjusting consumer spending for inflation, which generates the figures used to calculate GDP, purchases rose 0.1 percent after a 0.2 percent increase in the previous month.

Disposable income, or the money left over after taxes, climbed 0.4 percent after adjusting for inflation for a second month. It rose 2 percent over the past 12 months, the best performance this year.

The saving rate increased to 4.9 percent from 4.7 percent. Wages and salaries advanced 0.4 percent after increasing 0.5 percent in August.

Spending Breakdown

Inflation-adjusted spending on durable goods, including automobiles, decreased 1.2 percent after a 1.7 percent jump the prior month. Purchases of non-durable goods, which include gasoline, climbed 0.6 percent.

Household outlays on services rose 0.2 percent in September, the most since March. The category, which includes tourism, legal help, health care, and personal care items such as haircuts, is typically difficult for the government to estimate accurately.

Purchases of services, which in the July-September period posted the smallest advance in four years, were in large part responsible for the quarterly slowdown in spending, according to the GDP report yesterday.

Today’s Commerce Department figures showed the core price measure, which excludes food and fuel, rose 0.1 percent from the prior month and was up 1.2 percent from September 2012.

Americans are spending on big-ticket items such as vehicles and homes. Demand for automobiles held up at the start of the fourth quarter for General Motors Co. (GM:US) and Ford Motor Co. (F:US) as sales rebounded in the last few weeks of October. Cars and light trucks sold at a 15.2 million annual rate last month, matching the September pace.

Nonetheless, the fiscal gridlock in Washington in October has taken a toll on Americans’ moods. Consumer confidence fell for the sixth week in a row, with the Bloomberg Consumer Comfort Index declining last week to the worst reading since October 2012.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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