Biggest Monthly Consumer-Spending Drop in Four Years, First GDP Quarterly Decline since ‘91
US consumers, hesitant to buy big-ticket items, cut spending in September - and that resulted in the biggest consumer-spending monthly drop in more than four years, the Commerce Department reported today (Fri.) (
via MarketWatch).
Moreover, the gross domestic product (GDP) in the third quarter shrank at an annual rate of 0.3%, the Commerce Department's
Bureau of Economic Analysis also reported (Thurs.) (
via AP/Forbes).
Consumer spending, which constitutes some two-thirds of total economic activity, was falling at an annual rate of 3.1% in Q3 the GDP report found - the first quarterly decline since 1991, as well as the largest quarterly decline in 28 years, the AP writes.
Highlights of Sept. personal income and outlays report:
- Real consumer spending (personal consumption expenditures) fell 0.4% in September after remaining flat in August. Spending on autos, gas and oil were down.
- Personal income rose 0.2% in September, after rising 0.4% in August. Wages and salaries, the largest component of personal income, rose 0.1% after rising 0.4%. The Economic Stimulus Act of 2008 had a negligible effect on personal income in both months, the Commerce Dept. said.
- Personal consumption expenditures (PCE) prices rose 0.1% in September after remaining flat in August. Excluding food and energy, the index rose 0.2% in September and in August.
- Real disposable personal income (DPI), income adjusted for inflation and taxes, rose 0.1% in September after falling 1.0% in August. Real DPI was affected by tax rebates and subsidies from the Stimulus Act. Excluding those items, real DPI increased 0.2% in September and 0.4% in August.
- Personal saving as a percentage age of disposable income was 1.3% in September.
Highlights of Q3 GDP report*:
Real gross domestic product (GDP) decreased 0.3% in the third quarter of 2008 after increasing 2.8% in the second quarter of 2008.
Real GDP declined in Q3 mainly because of weak consumer spending, which fell 3.1% after modest growth over the previous three quarters. Spending on food, clothing, and shoes turned down.
Also:
- Net exports continued to contribute to growth but at a reduced rate.
- Business investment turned down.
- Housing continued to act as a drag on growth.
In contrast, inventories and federal government spending added more to growth this quarter than last.
Prices
Prices of goods and services purchased by US residents rose 4.8% after rising 4.2% in the second quarter. Food prices picked up, while energy prices decelerated.
Excluding food and energy, prices rose 3.1% after rising 2.2% in Q2.
Personal Income
Real disposable personal income (DPI) - income adjusted for inflation and taxes - decreased 8.7%, in contrast to an 11.9% increase in the second quarter. In the second quarter, it was boosted by the tax rebates from the Economic Stimulus Act of 2008.
Excluding those payments, real DPI rose 0.3% in Q3 after decreasing 0.4% in Q2.
* The Commerce Department's Bureau of Economic Analysis emphasized that these are third-quarter "advance" estimates and are therefore based on source data that are incomplete or subject to further revision by the source agency.
