Consumer spending is up, personal savings down

consumer spending

Consumer spending is on the rise, says the U.S. Commerce Department. Image: _Dinkel_/Fickr/CC BY

A mixed bag of economic news was released by the Commerce Department Monday. On one hand, consumer spending rose in September, indicating a greater consumer confidence. Simultaneously, the average consumer also saved less for the third consecutive month.

Consumer spending on the rise

Consumer spending rose to $87.9 billion in September, which is a gain of 0.8 percent when compared to the previous month. That is at a pace double the growth in their income, indicating a rising spending confidence from consumers.

Analysts had predicted a spending growth of only 0.6 percent for September.

August itself saw $59.9 billion in consumer spending, which is a gain of 0.5 percent over July. September’s numbers are the best since February.

Consumer spending fell in May, and held steady through June. Since that time, the numbers have been going north.

Meanwhile, the University of Michigan said last week that its Consumer Sentiment Index rose to a five year high for the month of October.

Economists are attributing the rise in consumer spending, at least in part, to lower gas prices and an improving job market.

Seventy percent of the American economy is driven by consumer spending.

Consumer savings on the wane

However, American consumers saved less money in order to make those new purchases. The rate of savings fell to 3.3 percent in September, which is the third drop in as many months. It was at 3.7 percent in August.

Personal income climbing

Personal income ticked up 0.4 percent, and was its highest since March. It helped to elevate the nation’s economic growth for the third quarter of 2012 to 2 percent. That is an increase from the 1.3 percent growth seen in the second quarter. However, it is still insufficient to lower the country’s jobless rate.

In August, personal income rose by only 0.1 percent.

Inflation on track

Inflation rose only 0.4 percent in September and was 1.7 percent higher, year-over-year. That is in line with the Federal Reserve, which wants to keep inflation under an annual 2 percent rate.

The looming fiscal cliff

Chris Rupkey, chief financial economist for the Bank of Tokyo-Mitsubishi in New York, said the looming fiscal cliff is not, as yet, factoring into consumer spending. Referring to increased consumer sending, he said:

“This means the fiscal cliff is not worrying consumers at this point like it is the business sector. The good news is that capital spending will resume if consumers keep buying at a moderate pace.”

Sources

Reuters
Los Angeles Times
Daily Finance

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