December 1, 2012 in Business

Consumer spending falls off in October

Analysts attribute drop in part to Superstorm Sandy
Martin Crutsinger Associated Press
 
Associated Press photo

Consumer spending fell 0.2 percent in October, suggesting U.S. economic growth could slow in the fourth quarter.
(Full-size photo)

Paychecks hit

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

WASHINGTON – Americans cut back on spending in October while their income remained flat. The weakness in part reflected disruptions from Superstorm Sandy that could slow economic growth for the rest of the year.

The Commerce Department said Friday that consumer spending dropped 0.2 percent in October, the weakest figure since May. September saw a 0.8 percent spending increase.

Income had risen 0.4 percent in September.

Consumers may be scaling back on spending because of fears about automatic tax increases and spending cuts that will take effect in January if Congress and the Obama administration fail to strike a budget deal by then.

“The upshot is that although both incomes and spending will probably bounce back in November, the underlying trend is weak,” said Paul Dales, senior U.S. economist at Capital Economics.

The depressed spending figures suggest that the economy is growing more slowly in the October-December quarter than it did in the July-September quarter. Consumer spending drives nearly 70 percent of economic activity.

Dales predicts U.S. economic growth will tumble from the 2.7 percent annual rate in the July-September quarter to a weak 1 percent in the October-December period. That’s too low to lower the unemployment rate, now at 7.9 percent.

Even discounting the effects of Sandy, income and spending gains would have been meager. Income would have risen 0.1 percent. Spending would have been essentially flat, Dales estimated.

After-tax income adjusted for inflation fell 0.1 percent in October. And spending, when adjusted for inflation, dropped 0.3 percent – the biggest such decline in three years.

Many economists say growth will rebound in the New Year once the rebuilding phase begins in the Northeast.

Still, the storm’s impact has slowed sales in the nation’s most densely populated region ahead of the crucial holiday shopping season.

The International Council of Shopping Centers said 18 major retailers reported sales rose 1.7 percent in November compared with the same period a year ago. The group had been expecting sales growth between 4.5 percent and 5.5 percent.

The economic damage from the storm may be starting to fade, though. Retailers are reporting solid sales over the Thanksgiving Day holiday weekend.

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