Oct. 31 (Bloomberg) -- U.S. consumer spending rose in September as Americans spent more on gasoline after two Gulf Coast storms sent oil prices soaring. Incomes rebounded last month after plunging in August because of uninsured losses from Hurricane Katrina.

The 0.5 percent gain in spending last month followed a 0.5 percent decline in August, the Commerce Department reported today in Washington. Personal spending adjusted for inflation, which strips away the rise in energy prices, fell 0.4 percent after falling 1 percent in August, the first back-to-back drop since 1990. Incomes rose 1.7 percent, the biggest gain since December 2004, from a 0.9 percent decline.

Surging oil and natural gas prices forced consumers to pay more to fuel their cars and stoves last month, leaving less to spend on restaurants, clothing and entertainment. Rising home heating bills this winter will deplete bank accounts even more. The Federal Reserve, which is set to raise its main lending rate tomorrow, said this month that soaring energy costs are increasing inflation risks.

``The rise in energy prices tends to serve as a headwind for spending by consumers,'' said Anthony Chan, senior economist at JPMorgan Asset Management in Columbus, Ohio. ``It certainly has diminished the impact of spending on big-ticket goods and raised the importance of energy-related expenditures.''

Incomes bounced back because uninsured losses from Katrina in August were revised to $240 billion from $100 billion at an annual pace. Losses not covered by insurance fell to $5 billion in September.

The decline in spending adjusted for inflation means consumers may have been hesitant entering the fourth quarter, signaling slowing growth.

Survey

Economists surveyed by Bloomberg News expected spending to rise 0.5 percent, with forecasts ranging from 0.2 percent to 1 percent. Incomes were forecast to rise 0.3 percent.

Because spending rose less than incomes, the savings rate improved to minus 0.4 percent from minus 1 percent the previous month.

The savings rate weighs current income from wages, salaries, dividends, businesses and government payments against spending. It doesn't take into account borrowed money, income from investments or rising home prices. Increasing wealth from rising home values and higher stock prices has added to incomes and supported spending.

Prices

The report's price gauge tied to spending patterns and excluding food and energy costs, Federal Reserve policy makers' preferred inflation measure, rose 0.2 percent last month and was up 2 percent from September 2004. The Fed in July predicted the price index would rise 1.75 percent to 2 percent this year. Prices including food and energy rose 0.9 percent last month, the biggest gain since February 1981, and were up 3.8 percent in the last 12 months.

The Fed's preferred price gauge, calculated quarterly, rose at a 1.3 percent annual rate in the third quarter, the slowest pace since mid-2003, the Commerce Department said Oct. 28.

``Consumers are still very much concerned about the prospects going forward, whether it is employment or incomes,'' said Andrew Pyle, an economist at Scotia Capital Inc. in Toronto. ``That could weigh directly on sales performance in the fourth quarter.''

Incomes rose 6.3 percent in September from the same month last year, paced by a 6 percent gain in wages and salaries. Disposable income, or the money left over after taxes, increased 1.9 percent in September following a 1.1 percent decline in August and was up 5.3 percent in the last 12 months.

Durable Goods

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, fell 2.4 percent after falling 8.6 percent. Purchases of non-durable goods fell 1 percent after rising 0.1 percent. Spending on services, which account for almost 60 percent of all outlays, increased 0.3 percent after rising 0.2 percent.

Federal Reserve Governors Donald Kohn and Roger Ferguson Jr., and Fed bank presidents Jack Guynn of Atlanta, Janet Yellen of San Francisco, Sandra Pianalto of Cleveland and Richard Fisher of Dallas, all said this month that the U.S. central bank must guard against rising prices. Economists expect the Fed to raise its benchmark-lending rate for a 12th straight time on Nov. 1.

``With gasoline at or near $3 a gallon recently, and other energy costs such as natural gas almost doubling in the past year, consumers may face tough choices in how they allocate their spending,'' Atlanta Fed Bank President Jack Guynn said Oct. 20.

Fuel

The retail price of a gallon of gasoline rose to an average of $3.12 in the week ended Sept. 5, according to the Energy Department. The price is up 45 percent since the start of the year.

Spending may stay under pressure as consumers grow wary of the economic outlook. Consumer confidence in October fell to the lowest level in 13 years as high energy bills prompted households to cut back on other spending, according to the University of Michigan's sentiment index released Oct. 28.

Economists surveyed by Bloomberg say consumer spending will slow to 2.2 percent in the fourth quarter as households feel the pinch from elevated energy costs. Consumer spending grew at a 3.9 percent annual pace in the third quarter, compared with 3.4 percent the prior quarter, the Commerce Department said today.

Gross Domestic Product

The U.S. economy grew at a more-than-expected 3.8 percent pace in the third quarter, compared with 3.3 percent in the previous three months, Commerce said.

Spending on big-ticket items probably slowed the most in September, economists said. Automakers sold cars and light trucks at an annual rate of 16.4 million units last month, according to Bloomberg data, down from 16.8 million in August and 20.9 million in July, when General Motors Corp. and Ford Motor Co. offered employee discounts to all buyers.

Auto sales probably dropped even more in October. Japan's Nissan Motor Co. reported a 22 percent decline in U.S. sales in the first two weeks of October, while industry-wide sales in the U.S. slumped 33 percent, said Nissan Chief Executive Carlos Ghosn in an interview Oct. 20 at the Tokyo Motor Show.

``Demand is down heavily,'' he said. ``Now that consumers are being convinced little by little that high oil prices are here to stay, they will be shifting their attitude on the market.''

Other companies are also growing pessimistic about sales.

RadioShack Corp., the third-largest U.S. electronics chain, on Oct. 21 cut its earnings forecast for the year on slowing sales of wireless phones.

``There is a reason, obviously, to be prudent as we go into the fourth quarter,'' David Edmondson, Radio Shack's chief executive, said in an interview Oct. 21 from Fort Worth, Texas. With ``$3 dollar gas prices and low consumer confidence, I think it's prudent to be more conservative.''

To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net.

Last Updated: October 31, 2005 08:30 EST