Personal Spending Slows

Consumer spending in real terms slowed in September, as higher energy prices accounted for most of the 0.4 percent increase in expenditures, the government said Tuesday.

Hurricane Floyd's rains and winds flattened personal income growth in September but consumer spending in non-inflation adjusted terms hardly slackened, the Commerce Department said.

Personal consumption expenditures rose 0.4 percent to an annual rate of $6.01 trillion while personal income was flat at $7.5 trillion, the government said. Disposable personal income fell 0.2 percent to $6.4 trillion.

In August, incomes had risen 0.4 percent, disposable incomes had climbed 0.5 percent and spending had increased 0.8 percent. The figures are not adjusted for inflation. Income growth was less than the 0.3 percent expected by the economists polled by CBS.MarketWatch.com.

Spending was a bit faster than the 0.3 percent consensus. Much of the gain in spending was a money illusion. In real (inflation-adjusted terms), spending rose just 0.1 percent, the second lowest pace of the year. Real disposable incomes fell 0.6 percent.

The Federal Reserve is looking for signs that its two interest rate hikes — and the concurrent effects in the stock and credit markets — have slowed consumers spending. The concern is that demand will outstrip the economy's ability to supply good and services, leading to higher prices.

Fed Chairman Alan Greenspan said the consumer spending boom that has powered America's long economic expansion has been fueled more by rising home sales than by the soaring stock market with its "volatile and often-ephemeral gains."

Greenspan said research by Fed economists indicated that the profits homeowners get when they sell their houses get translated into increases in consumer spending in a bigger way than capital gains realized from rising stock prices.

"Although the appreciation of stock prices has been vastly greater than that of home prices, most estimates suggest that stock gains are consumed only gradually," Greenspan said.

The personal savings rate fell to 1.6 percent of disposable income, the lowest recorded since 1959, when the current methodology begins. The saving rate has fallen in half since the beginning of the year.

Spending on durable goods dropped 0.4 percent in September. Previous data showed a decline in auto sales. Spending on nondurable goods rose 0.8 percent (but the increase was entirely due to inflation) while spending on services rose 0.2 percent.

The storm damaged residences and business property, cutting rental income and proprietors' income by $22 billion at an annual rate, the government said. Other impacts of the storm on wages and salaries were not quantified, although the Labor Department noted earlier than the storm cost about 58,000 jobs the week it hit.

Without the drop in rental and proprietor income, personal incomes would have risen 0.3 percent.