WASHINGTON (AP) — Americans spent in September at three times the pace of the previous month, even though their incomes barely budged. They financed their spending binges by saving at the lowest level since the start of the Great Recession.
Consumer spending rose 0.6 percent last month, the Commerce Department said Friday. The gain was driven by a big rise in purchases of durable goods, such as autos.
Consumers earned only 0.1 percent more after their income fell by the same amount in August. And after adjusting for inflation, their after-tax incomes fell 0.1 percent last month — the third straight monthly decline.
As a result, they saved less. The savings rate fell to 3.6 percent, the lowest level since December 2007.
Expectations were high after the government said Thursday that consumer spending helped fuel annual growth of 2.5 percent in the July-September quarter, the best quarterly expansion in a year.
Consumer spending is closely watched because it accounts for 70 percent of economic activity. It grew at an annual rate of 2.4 percent in the third quarter. That’s more than triple the growth in the April-June quarter.
The economy would have to grow at nearly double the third-quarter pace to make a dent in the unemployment rate, which has stayed near 9 percent since the recession officially ended more than two years ago.
Economists doubt consumers can keep spending like they did this summer without earning more. Many are struggling with higher prices for food and gas. For spending gains to be sustained, employers need to step up hiring.
In recent months, job growth has stagnated. Employers have added an average of only 72,000 jobs per month in the past five months. That’s far below the 100,000 per month needed to keep up with population growth. And it’s down from an average of 180,000 in the first four months of this year.
Employers added only 103,000 jobs in September, and the unemployment rate remained 9.1 percent for a third straight month.
The government releases the October employment report on Nov. 4.
And spending could tumble next year if Congress fails to extend a Social Security tax cut, which gave most Americans an extra $1,000 to $2,000 this year, or long-term unemployment benefits. Both expire at the end of the year.
Paul Ashworth, chief U.S. economist for Capital Economics, predicts that overall growth will cool in the fourth quarter and next year. He predicts growth of just 1.5 percent for all of 2012.
Mark Zandi, chief economist at Moody’s Analytics, is more optimistic. He expects roughly the same 2.5 percent growth in the October-December quarter and also in the first three months of next year.