Consumers Cut Spending in October

Consumer spending dropped 0.2 percent in October, the government said. That was down from an increase of 0.8 percent in September and was the weakest showing since May.

Income was flat in the month, following a 0.4 percent rise in September.

The government said work interruptions caused by the late October storm reduced wages and salaries by about $18 billion at an annual rate. Hurricane Sandy affected 24 states, with the most severe damage in New York and New Jersey.

Consumers may also be worried about automatic tax increases and spending cuts that will take effect in January if lawmakers and the Obama administration fail to strike a deal before then.

The depressed spending figures suggest economic growth are likely to be weak in the October-December quarter. Consumer spending drives nearly 70 percent of economic activity in the United States.

Discounting the effects of the storm, income growth would have risen a still-weak 0.1 percent. After-tax income adjusted for inflation fell 0.1 percent, while spending adjusted for inflation dropped 0.3 percent.

The saving rate edged up slightly, to 3.4 percent of after-tax income in October, compared with 3.3 percent in September.

The government reported Thursday that the overall economy grew at an annual rate of 2.7 percent in the July-September quarter, an improvement from the 2 percent rate of growth initially estimated. However, economists believe the acceleration in activity will be short-lived.

Many of them predict growth is slowing in the current October-December quarter to less than 2 percent, a rate that is too weak to make a significant dent in unemployment. But they expect growth to rebound in the New Year when the rebuilding phase begins in the Northeast.

In October, spending at retail businesses fell 0.3 percent, the first drop after three months of gains. Auto sales dropped 1.5 percent, the biggest decline in a year.

Article source: http://www.nytimes.com/2012/12/01/business/economy/consumers-cut-spending-in-october.html?partner=rss&emc=rss