Spending, Incomes Rise In October

Positive Signs That Final Quarter Of 2004 Off To Good Start

(AP)  American consumers spent briskly in October, an encouraging sign that the final quarter of 2004 is getting off to a decent start. Incomes rose sharply.

The Commerce Department reported Wednesday that consumer spending went up by 0.7 percent in October, up from 0.6 percent rise in September and the best showing since July.

Growth in Americans' incomes — the fuel for future spending — jumped by 0.6 percent in October as the employers added significantly to payrolls. That compared with a 0.2 percent advance in September and marked the biggest increase since May.

The latest snapshot of consumers was better than economists were expecting. They were forecasting a 0.4 percent rise in consumer spending and a 0.5 percent increase in income growth.

"Consumers were not deterred by higher oil prices and by consumer confidence numbers that keep on going lower," said Ken Mayland, president of ClearView Economics. "I got to believe this gets the fourth quarter off on very solid footings."

The spending and income figures are not adjusted for price changes.

When adjusted for inflation, consumer spending rose by a more moderate — but still healthy — 0.3 percent in October.

The Federal Reserve, wanting to make sure inflation doesn't become a problem for the economy, has boosted short-term interest rates four times this year. Economists expect another increase on Dec. 14.

An inflation gauge tied to the report showed that inflation is picking up. Prices rose by 0.4 percent in October, up from a tiny 0.1 percent increase in September.

The economy grew at a solid 3.9 percent pace in the third quarter as consumers and businesses spent more freely. Some analysts believe growth in the current October-to-December quarter could slow a bit, while others believe it could be slightly stronger.

Consumers have amazed economists with their resiliency. Analysts said they'll be watching consumers closely to see the extent to which sinking consumer confidence, high energy prices and a job market still recovering from the 2001 recession affect their buying behavior.

Spending by consumers accounts for roughly two-thirds of all economic activity in the United States. Thus their buying appetite is an important factor in determining the strength of economic growth.

Wednesday's report showed that consumer spending on big-ticket "durable" goods such as cars, rose by 0.2 percent in October, down from a sizable 1.2 percent gain in September.

Spending on nondurable goods, such as food and clothing, jumped by 1.5 percent in October, compared with a 0.8 percent increase in the prior month. Spending on services rose 0.5 percent in October, up from a 0.4 percent gain. The figures are not adjusted for prices changes.

The Bush administration credited the president's tax cuts with helping the economy rebound. But Democrats counter that the tax cuts mainly helped the wealthy and plunged the government's balance sheets deeper into the red.

With consumer spending outpacing income growth in October, the personal savings rate — savings as a percentage of after-tax income — dipped to 0.2 percent, from 0.3 percent in September. October's savings rate was the lowest in three years.

Economists say the savings rate doesn't provide a complete picture of household finances because it doesn't capture gains realized from such things as higher real-estate values or from financial investments.