Skip to main content

The Globe and Mail

U.S. consumer spending stumbles, income growth stalls

Shoppers carry bags as they walk down Fifth Avenue in New York in this file photo.


U.S. consumer spending fell in October for the first time in five months as income growth stalled, suggesting slower economic growth in the fourth quarter.

The Commerce Department said on Friday consumer spending fell 0.2 per cent after an unrevised 0.8 per cent rise in September.

It said it could not quantify the impact of superstorm Sandy, but added it made adjustments where source data was not yet available or did not reflect the effects of the storm.

Story continues below advertisement

Though the storm, which slammed the East Coast in late October, put a brake on automobile sales, the drop in spending last month was in part a reflection of the weak economic fundamentals.

Economists polled by Reuters had expected consumer spending, which accounts for 70 per cent of U.S. economic activity, would be flat last month.

When adjusted for inflation, consumer spending fell 0.3 per cent, the first decline since June, after rising 0.4 per cent the prior month.

It was also the largest decline since September 2009 and implied growth in consumer spending this quarter would struggle to exceed the third-quarter's 1.4 per cent annual pace, which was the slowest in more than a year.

While the economy grew 2.7 per cent in the third quarter after advancing 1.3 per cent in the prior three months, much of the boost came from the restocking of goods and robust government spending. That is likely to be lost in the final three months of the year.

Growth could also be pressured by the lingering effects of the storm and automatic deep cuts to government spending and tax increases that could drain $600-billion early next year unless Congress and the Obama administration agree on a less-severe plan to cut budget deficits.

Income was unchanged in October for the first time since April and followed a 0.4 per cent gain in September. The department said private wages and salaries fell, reflecting work interruptions caused by Sandy.

Story continues below advertisement

The amount of income at the disposal of households after inflation and taxes dipped 0.1 per cent after being flat in September. Despite weak income growth, the saving rate rose to 3.4 per cent from 3.3 per cent the prior month.

Report an error

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨