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US consumer spending dips first time in five months
2009-10-30
WASHINGTON (AFP) - US consumer spending, a critical growth driver, fell for the first time in five months in September, official data showed Friday amid fears the economy may slow just after exiting recession. Household spending decreased 47.2 billion dollars or 0.5 percent last month, as expected by most economists, following a revised 1.4 percent jump in August, the Commerce Department said. It was the biggest drop since December 2008. The fall in spending came as Americans' income turned flat in September following a 0.1 percent increase the previous month as the country emerged from nearly two years of recession stemming from a home mortgage crisis. The spending decline was attributed largely to the August end of a highly popular "cash-for-clunkers" program, which gave consumers a tax credit toward the price of a new car or truck if they traded in a less fuel-efficient vehicle. The program spurred consumer spending that fueled economic growth in the third quarter after a year of contractions, hauling the world's largest economy from the worst recession since the Great Depression, government data showed Thursday. After shrinking a sharp 6.4 percent in the first quarter, the world's largest economy has been on life support from the federal 787-billion-dollar emergency stimulus and other crisis measures. "The takeaway is that stimulus efforts helped turn the economy around in the third quarter. Once the cosmetics are taken away, though, will things look as pretty? Probably not," said Patrick O'Hare, analyst at Briefing.com. "We expect a growth relapse in the next few quarters -- though not into negative territory," said Nariman Behravesh, chief economist of IHS Global Insight. Consumer spending could grow but at a more subdued pace due to rising unemployment, resulting in lack of income support, reduced wealth, high debt and tight credit, according to IHS Global Insight. US consumer confidence has also slumped. The University of Michigan said Friday its final index reading of American consumer sentiment in October dropped to 70.6, from 73.5 in September, which was the highest in more than a year. The Conference Board, a private research firm, said earlier in the week its consumer confidence index declined for the second month in a row. "The lack of meaningful improvement in consumer sentiment evident in the latest data illustrates how troubled the job market is and how much uncertainty remains over the initial strength of the recovery," said Ryan Sweet, a senior economist with Moody's Economy.com. The unemployment rate is expected to hit 10 percent in October for the first time since 1983. High Frequency Economics, a research firm, said that US gross domestic product (GDP) would expand by a mere one percent in the fourth quarter and between one and two percent through 2010. "And even that modest performance assumes there will be another federal fiscal stimulus package next spring, if only to offset the inevitable further tightening in the state and local level," said its chief US economist Ian Shepherdson. But analysts at Barclays Capital and Deutsche Bank think growth could accelerate. "The mix between final demand and inventories points to noticeable further strengthening in economic activity over the next couple of quarters at least relative to our earlier projections," said Joseph LaVorgna of Deutsche Bank. "In particular, the immediate need for producers to restock inventories to meet stronger-than-anticipated demand will most likely lead to a bulge in GDP growth this quarter and next," he said. Growth should accelerate to four percent in fourth quarter 2009 and five percent in first quarter 2010," said economist Dean Maki of Barclays Capital.
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