Consumer Spending Strong as Incomes Rise

Consumers got back in the buying mood in October as their incomes grew modestly, an encouraging sign for the budding economic recovery.

The Commerce Department reported Wednesday that consumer spending rose a brisk 0.7 percent last month, following a pullback in September when spending plunged by 0.6 percent.

It was the best showing since a big 1.3 percent jump in August when the government's now-defunct Cash for Clunkers programs enticed people to buy cars.

Incomes, the fuel for future spending, rose 0.2 percent for the second straight month.

The rebound in spending shows that consumers — who power 70 percent of national economic actiivty — are managing for now to hold up under the weight of some heavy negative forces.

The fear among Federal Reserve officials and other economists, though, is that those negative forces — rising unemployment and hard to get credit, which makes it difficult to finance big-ticket items like homes, cars and appliances — will eventutally cause consumers to turn more cautious in their spending in the months ahead, making for a lethargic recovery.

Still, Wednesday's figures seemed to blunt fears that consumers could clam up, sending the country into a "double dip" recession, although there continues to be concern that consumer spending will slow early next year.

The increase in consumer spending in October was bigger than the 0.5 percent rise economists were forecasting. The growth in incomes matched expectations.

With spending outpacing income growth, Americans' personal savings rate — savings as a percentage of after-tax income — dipped to 4.4 percent in October from 4.6 percent in September.

Consumers spent more on costly "durable" manufactured goods — such as cars and appliances — last month. Such spending rose 2.1 percent, compared with a 8.5 percent drop in September. They also boosted spending last month on "nondurables," such as food and clothes, and on services.

Inflation, excluding food and energy, rose 1.4 percent over the past year, well within the Fed's comfort zone.