U.S. Incomes, Spending Rise Beyond Expectations

WASHINGTON â€”  Americans’ incomes, boosted by huge federal farm payments, increased by the largest amount in 13 months in September, while consumer spending rose at the fastest pace since February.

The Commerce Department said Monday that personal incomes rose by a strong 1.1% last month while spending, propelled by heavy demand for durable goods such as autos, was up 0.8%.

Economists said the new report showed that though the overall economy slowed sharply in the summer, the all-important consumer sector still had plenty of strength, led by big gains in income that are helping consumers continue to buy with abandon despite rising debt burdens and a weakening stock market.

“Consumers have a ton of money to spend, and that is exactly what they did,� said Joel Naroff, head of a Holland, Pa., economic consulting firm.

The 1.1% rise in incomes was the largest since a 1.3% jump in October 1999.

Both months, however, were strongly influenced by federal subsidy payments to farmers who are struggling to cope with weak prices.

Without an increase in the federal payments, the personal income gain would have been a more moderate 0.4% in September.

Both the income increase and the spending gain were well above expectations, and some analysts said they would translate into an upward revision in the gross domestic product, the economy’s total output, for the third quarter. Consumer spending accounts for two-thirds of total economic activity.

On Friday, the government had reported that the overall economy, as measured by the GDP, slowed to a growth rate of just 2.7% in the July-September quarter, less than half the torrid 5.6% April-June pace.

This dramatic slowdown had cheered financial markets, which believed it showed that the Federal Reserve is close to achieving its desired soft landing, in which growth slows enough to keep inflation in check but not enough to bring on a recession.

Economists said they still expected Fed policymakers to keep interest rates unchanged at the next meeting Nov. 15. But they also said Monday’s report on incomes and spending showed that economic growth is likely to rebound in the final quarter, keeping the Fed on high alert for further rate increases either at the December meeting or early next year.

Disposable incomes, the amount left after paying taxes, rose by 1.1% in September, slightly outpacing the 0.8% rise in spending, the Commerce Department report showed.

That allowed the savings rate--savings as a percent of disposable income--to move slightly off the record monthly low of minus 0.4% set in August. For September, the savings rate registered a minus 0.1%.

The 0.8% rise in consumer spending in September was the biggest gain since a 1.2% rise in February.

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Personal Income

Seasonally adjusted annual rate, in trillions of dollars:

September: $8.43 trillion

Source: Commerce Department