Consumer spending plunged in September by the largest amount in nine months, reflecting the end of the government’s Cash for Clunkers auto sales program. Incomes, the fuel for future spending, were flat.
While the government reported that the overall economy grew in the July-September period, signaling the end of the worst recession in seven decades, the weakness in spending and incomes as the quarter ended underscores the fragility of the recovery.
The Commerce Department said today that spending dropped 0.5 percent in September, matching economists’ expectations. Personal incomes were unchanged as workers contend with rising unemployment and a squeeze on wages.
Economists worry that the recovery could falter in coming months if households cut back on spending to cope with rising unemployment, heavy debt loads and tight credit conditions.
The concern is that much of third-quarter growth stemmed from temporary government programs such as the clunkers sales incentives that ended in August.
The government said Thursday the gross domestic product, the broadest measure of economic health, expanded at an annual rate of 3.5 percent in the third quarter, the first increase after a record four straight declines. A 3.4 percent rise in consumer spending, which accounts for 70 percent of total economic activity, powered the gain.
And consumers appear willing to pay a little more for Colgate toothpaste, Kellogg’s Frosted Flakes and Gillette Fusion shavers, according to earnings released Thursday. Procter & Gamble Co., Colgate-Palmolive Co. and Kellogg Co. all gave upbeat reports and even stronger outlooks for next year.
However, some economists believe that consumer spending will slow sharply in the current quarter, lowering GDP growth to perhaps 1.5 percent. Analysts said the risk of a double-dip recession cannot be ruled out over the next year.
The 0.5 percent drop in consumer spending in September followed a 1.4 percent surge in August which was propelled by the big jump in car sales that month as consumers rushed to take advantage of the clunkers’ incentives. (AP)
