First drop in US consumer spending in two year

01 Nov, 2008

US consumers cut their monthly spending for the first time in two years during September, evidently bracing for hard times as jobs continue to disappear and credit conditions tighten. A Commerce Department report on Friday showed that consumer spending shrank by 0.3 percent in September and was flat in both August and July.
That was in line with forecasts by Wall Street economists surveyed by Reuters and underlined the steady weakening in spending, which fuels two-thirds of US economic activity. The decline in monthly spending the largest since a matching 0.3 percent fall in May 2005.
Many private-sector economists believe the US already has entered a recession, especially since a government report on Thursday showed gross domestic product contracted at a 0.3 percent annual rate in the third quarter. The GDP report already incorporated September's income and spending data, so market reaction to Friday's monthly data was muted. A separate Labour Department report on Friday showed US employment costs rose 0.7 percent as expected in the third quarter and wages and salaries also were up 0.7 percent.
But on a 12-month basis, total compensation that includes not only wages and salaries but also benefits, rose just 2.9 percent. That was the smallest 12-month gain since March 2006 and provided another marker on the strain that consumers are under.
In September alone, Commerce said income from wages and salaries and other sources gained by 0.2 percent, half the 0.4 percent rise posted in August. Incomes had been boosted earlier in the year by government economic stimulus payments but that had largely disappeared by September.
Price pressures moderated slightly in September. The year-over-year rise in the personal consumption expenditures index eased to 4.2 percent from 4.5 percent in August. Core prices, which exclude food and energy, rose 2.4 percent in September, slowing from 2.5 percent a month earlier.

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