Personal spending up more in Sept. than expected

Martin Crutsinger, AP Business Writer

Shoppers carry their purchases at a Target in Chicago.

Consumer spending pace shows confidence in the economy
Spending gains are coming from savings, not income increases
Government shutdown delays filing of stories on Monday's report

WASHINGTON (AP) -- Americans increased their spending in September at twice the rate that their income grew, a sign of confidence in the economy.

Still, consumers made up the difference by saving at a lower rate for the third straight month, a troubling trend.

The Commerce Department said Monday that consumer spending increased 0.8% in September from August. That followed a 0.5% gain in August and was the best showing since February.

Personal income rose 0.4%, up from a slight 0.1% gain in August and the best gain since March. However, after adjusting for inflation and taxes, income was flat in September. That followed a 0.3% decline in August.

Consumer spending is important because it drives nearly 70% of economic activity.
A pickup in consumer spending helped lift economic growth in the July-September quarter to a 2% annual rate. While that is faster than the 1.3% rate in the April-June period, it's still too weak to create enough jobs to rapidly lower the unemployment rate.

Dissemination of the report was somewhat delayed because of Hurricane Sandy. The government did release the report on time at 8:30 a.m. ET.

However, dissemination on Wall Street was delayed due to a government shutdown, which caused the cancellation of a so-called "lockup." That's a group of reporters who are given the report early in a locked room at the government agency releasing the report.

The agency closely supervises the reporters to prevent the filing of any stories until the government officially releases the data.

The delay likely didn't matter much since all trading in the U.S. is closed Monday due to Storm Sandy. There is limited electronic trading of commodities and stock futures were electronically traded until the market's usual opening time of 9:30 a.m. ET.

Economists did express concerns about Monday's report.

Paul Dales, senior U.S. economist at Capital Economics, said weak income growth would likely hold back spending in the coming months. Consumers can only cut their savings by so much, he cautioned. And if Congress fails to reach a budget deal by the end of the year, taxes will rise in January. That could also dampen consumer spending.

"Faced with the prospect of major tax hikes in the New Year, (consumers) will soon become more cautious," Dales said.

The spending gain in September reflected in part rising consumer confidence. The University of Michigan reported Friday that its final consumer sentiment index for October had hit a five-year high. Falling gas prices and a slightly better job market were credited with lifting consumers' outlook.

Still, households trimmed their savings to finance the increase in purchases, Monday's report showed. The savings rate dropped to 3.3% of after-tax incomes in September, down from 3.7% in August and 4.1% in July.

Americans also paid more for gas in September. That drove an inflation gauge tied to consumer spending up 0.4% last month. But excluding food and energy, prices rose just 0.1%. And gas prices have dropped since then, which could encourage more spending elsewhere.

With eight days until the presidential election, the economy is being kept afloat by a revitalized consumer and the early stages of a housing recovery. The nation continues to struggle because businesses are reluctant to invest, and slower global growth has cut demand for American exports.

The unemployment rate fell to 7.8% last month, the first time it has been below 8% since January 2009, the month President Obama took office.

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