Consumer Spending Falls 0.3 Percent in September
Friday, October 31, 2008; 10:20 AM
Consumers shied away from big-ticket items in September, as wages remained basically stagnant and people began to tuck more money into savings -- further evidence of a pullback by American households.
Overall consumer spending dropped 0.3 percent in September compared with the month before, while disposable income -- the money left after taxes -- barely crept ahead of inflation, increasing by 0.1 percent. A drop in spending on big-ticket consumer items, particularly automobiles and parts, accounted for much of the decline in overall spending, with a drop of 2.9 percent in September compared with the month before.
Savings rates, notoriously low in a society accustomed to financing spending with credit cards and home equity loans, increased for the second straight month, to 1.3 percent of disposable personal income, or about $140 billion.
The drop in consumer spending upends what has been a mainstay of the U.S. economy. Through recession, countless natural disasters and a major terrorist attack, there has been one constant: American consumers have bought more stuff in any given quarter than they did in the previous one.
Along with the September-only numbers, personal consumption expenditures fell at a 3.1 percent annual rate in the third quarter, the government said yesterday, the worst decline since 1980. The data show that even before the financial crisis deepened in October, American households were being walloped to a degree that has no recent precedent. Conditions, economists said, are almost certain to get worse before getting better.
"This is a major about-face in consumer spending," said Robert A. Dye, a senior economist with PNC Financial Services Group. "It's no surprise why. We've had a drop in the value of houses and stock portfolios, a very weak labor market and a tightening of credit."
Overall, the nation's gross domestic product, the broadest measure of economic growth, declined at a 0.3 percent annual rate in the three months ended Sept. 30, the Commerce Department said. The economy would have shrunk even more had it not been for strong export growth and government spending, as well as a buildup in business inventories -- all factors that are poised to offer less of a boost in the future.
Analysts yesterday had been braced for even worse economic data, and the stock market rose following the announcement. The Dow Jones industrial average was up 190 points for the day, or 2.1 percent, amid some decent earnings reports and some signs of healing in the troubled credit markets.
Many analysts think the country is already in a recession -- although the panel of economists that makes such determinations has not yet ruled -- and that the economy will contract at perhaps a 3 or 4 percent annual rate in the final three months of the year.
The GDP figures gave new impetus to calls for a government stimulus package. Congressional Democrats are now considering crafting a spending proposal of about $100 billion, with the hope that -- if endorsed by President Bush and the president-elect -- the package could be passed next month and signed by the end of the year. Democrats may then consider another package in January, the third in 12 months, Rep. Barney Frank (D-Mass.) said.
Publicly, White House officials have not been particularly receptive to the idea of additional spending. But their rhetoric has softened in recent weeks, and political observers said there might be room for compromise, perhaps involving trade deals with Colombia and Panama, which are high priorities for Bush but opposed by many congressional Democrats.
"The White House has some things they want, like Colombia and Panama. So I think the opportunity is there," said John J. Castellani, president of the Business Roundtable, an association of 160 of the nation's largest companies, which joined the call for additional government stimulus spending.