Consumer spending rise is biggest in seven months

Sept. data also show income gain, but it reflects farmers' aid

October 31, 2000|By BLOOMBERG NEWS

WASHINGTON - Spending by U.S. consumers surged last month and federal farm payments boosted incomes, suggesting demand for goods will grow in the months ahead, government figures yesterday showed.

Purchases of automobiles and higher-priced gasoline led the 0.8 percent rise in personal spending in September, the biggest gain in seven months, after a 0.5 percent increase in August, the Commerce Department reported.

An election-year package of farm aid pushed up incomes 1.1 percent in September, the biggest rise in 11 months, after incomes rose 0.4 percent in August. "The key to growth is income, and households have the money to spend," said Joel L. Naroff, president of Naroff Economic Advisors in Holland, Pa.

The September spending increase was the largest since a 1.2 percent gain in February. September's rise in incomes was the largest since a 1.3 percent gain in October 1999, also the result of farm subsidies.

President Clinton signed legislation in June giving farmers $7.1 billion in aid to compensate for low grain and livestock prices. Of that, $5.5 billion was due to cotton and grain growers by Sept. 30. It was the third straight year of extra farm subsidies in addition to regularly scheduled payments. A spending bill that Clinton signed over the weekend provides an additional $3.5 billion in aid.

Even with the income boost, Americans spent more than they earned in September. That produced the third straight month with a negative savings rate, a sign consumers are borrowing to propel the economic expansion toward a record 10th anniversary in April.

Consumer spending accounts for about two-thirds of the nation's output. Federal Reserve policy-makers have sought to limit a surge in spending from causing the economy to overheat by raising the overnight bank lending rate six times since June 1999.

Inflation picked up last month, the income and spending report showed.

The personal consumption expenditures index, a measure watched by the Fed, rose 0.4 percent last month after showing no change in August. For the third quarter, the index rose at a 2.2 percent annual pace, close to the 2.1 percent pace in the second quarter, the government said last week.

The economy expanded at a 2.7 percent annual pace in the third quarter, down from a 5.6 percent growth rate in the second.

"Overall economic growth may have slowed during the third quarter, but when it comes to consumption, the easing was minimal," Naroff said. "And there is little reason to believe a further deceleration is in the offing."

Spending grew at a 4.5 percent pace in the third quarter, according to a report last week on the gross domestic product, compared with a 3.1 percent rate in the second quarter.

After adjusting for inflation, spending rose 0.4 percent in September after rising 0.5 percent in August. Discounting farm payments, incomes rose 0.4 percent, the same as in August.

Spending on durable goods rose 1.5 percent in September, the biggest increase since spending rose 1.7 percent in February. That followed a rise of 0.6 percent in August. The government said this was due largely to sales of automobiles and parts. Auto sales rose last month at an annual pace of 17.9 million vehicles, the fastest since April, as cheaper imports and discounts on U.S.-made vehicles lured buyers.

Purchases of nondurable goods increased 0.9 percent last month, the largest gain since March, after rising 0.2 percent the month before. Adjusted for inflation, spending on nondurable goods, which includes energy, fell 0.1 percent after rising 0.5 percent in August.

Disposable income, or the money left over after taxes, increased 1.1 percent in September after rising 0.4 percent in August. And the personal savings rate was a minus 0.1 percent.

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