U.S. Consumer Spending Gain of 0.6% Helps Economy Skirt Recession Relapse

Consumer spending in the U.S. accelerated in September, helping the world’s largest economy skirt a recession.

Purchases increased 0.6 percent, matching the median estimate of 81 economists surveyed by Bloomberg News, after a 0.2 percent gain the prior month, Commerce Department figures showed today in Washington. Incomes rose less than projected, sending the savings rate down to the lowest level in almost four years.

A pickup in consumer spending helped propel the economy through the third quarter while policy makers from President Barack Obama to Federal Reserve officials moved to take additional action to spur growth and hiring. Without a pickup in wages, households may be unable to maintain gains in purchases.

“Given the state of consumer sentiment and the savings rate, we should see moderate spending, at best, going forward,” said Sean Incremona, a senior economist at 4Cast Inc. in New York who correctly forecast the increase in purchases. “The savings rate is just one of those warning signs that says we’re not pulling ourselves out vigorously, so the economy still has a lot of vulnerability.”

Stock-index futures held earlier losses after the report as investors awaited the outcome of Europe’s efforts to raise money for its enhanced bailout fund. The contract on the Standard & Poor’s 500 Index expiring in December fell 0.6 percent to 1,275 at 8:47 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 2.34 percent from 2.40 percent late yesterday.

Survey Results

Projections for spending in the Bloomberg survey ranged from increases of 0.1 percent to 1.2 percent.

Incomes rose 0.1 percent last month after dropping 0.1 percent in August. Economists had forecast incomes would increase 0.3 percent, according to the Bloomberg survey. Wages and salaries climbed 0.3 in September after falling 0.1 percent a month earlier. A 1.4 percent plunge in interest income limited the overall gain.

The savings rate fell to 3.6 percent in September, the lowest since December 2007, according to the release.

The report also showed inflation cooled. The Fed’s preferred price gauge, which excludes food and fuel costs, was little changed in September from the prior month after rising 0.2 percent the prior month. It was projected to rise 0.1 percent, according to the median forecast of economists surveyed. It was up 1.6 percent over the past 12 months, down from a 1.7 percent gain in the year ended August.

Employment Costs

Another report today showed employment expenses rose in the third quarter at the slowest pace in two years, indicating inflation will stay subdued. The 0.3 percent rise in the employment cost index from July through September was less than projected and followed a 0.7 percent gain in the prior three months, according to figures from the Labor Department. Wages climbed at the slowest pace in a year, while benefit costs were the tamest since 1999.

Today’s numbers provide a monthly breakdown of the quarterly data released yesterday by the Commerce Department that showed the U.S. economy grew in the third quarter at the fastest pace in a year. Gross domestic product expanded at a 2.5 percent annual rate, up from 1.3 percent in the prior three months.

Household purchases, the biggest part of the economy, rose at a 2.4 percent pace, contributing 1.7 percentage points to growth.

Less Confidence

Purchases are climbing even as confidence sinks. The Bloomberg Consumer Comfort Index dropped to minus 51.1 in the week ended Oct. 23, the lowest in a month, from minus 48.4 the prior period. Ninety-five percent of those surveyed had a negative opinion about the economy, the worst since April 2009 and one percentage point shy of a record high.

Nonetheless, Macy’s Inc. and Kohl’s Corp. are among retailers planning to boost hiring, betting demand will hold up into the November-December holidays, the year’s biggest selling season.

Auto purchases picked up in September as manufacturers restored output on receding disruptions from Japan’s earthquake. Cars and light trucks sold at an average 13 million annual rate last month, up from a 12.1 million pace in August.

President Obama and the Federal Reserve still face pressure to spur employment needed to support further household spending. The president earlier this week said he is seeking ways to take action without congressional approval after the Senate blocked his $447 billion plan to create jobs.

Fed Options

Fed policy makers are developing options for further monetary easing even as the economy picks up. Vice Chairman Janet Yellen said last week that a third round of large-scale asset purchases “might become appropriate if evolving economic conditions called for significantly greater monetary accommodation.”

“Consumers today are still facing inflationary pressures on food, high unemployment, little job and income growth and waning consumer confidence,” BJ’s Restaurants Inc. (BJRI) Chief Financial Officer Gregory Levin said in an Oct. 20 call with analysts after the chain reported a 6.5 percent increase in comparable-store sales for the third quarter. “It is difficult to ascertain if the current trends represent the trend we will end up seeing throughout the remainder of this year, or how strong the holiday retail selling season will be.”

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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

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