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Consumer spending dropsPosted by Retirement on: 2005-09-30 06:59:00 in category:
Finance [ Print | Permalink / 0 Comment(s) ] By Tim Ahmann Reuters Friday, September 30, 2005; 9:31 AM WASHINGTON (Reuters) - U.S. consumer spending fell an unexpectedly steep 0.5 percent in August, the biggest drop since November 2001, according to a government report on Friday that also showed a surprise income decline potentially caused by Hurricane Katrina. The fall in spending came as energy prices pushed consumer inflation up 0.5 percent, the largest jump since September 1990, the Commerce Department said. Adjusting for the impact of inflation, consumer spending skidded a hefty 1 percent, matching a plunge in September 2001 as the largest since January 1987. Outside volatile food and energy costs, inflation as measured by the Federal Reserve's favorite gauge edged up 0.2 percent. Over the past year, so-called core inflation has climbed 2 percent, a tick faster than in the 12 months through July. Income in August decreased 0.1 percent as rental and proprietors' income fell. The department said Hurricane Katrina, which slammed into the U.S. Gulf Coast on August 29, likely shaved those two measures by a combined $100 billion annualized due to uninsured property losses. But the hit to income was offset to the tune of $70 billion as insurance benefit payments rose in the storm's wake. Wall Street economists had expected personal income to rise 0.3 percent and had forecast a smaller 0.3 percent drop in nominal spending. In addition, they had expected core inflation to edge up only 0.1 percent. Prices for U.S. government bonds slipped and the dollar firmed, suggesting traders saw the report as likely to keep alive concerns over inflation at the Fed. The U.S. central bank last week raised overnight interest rates by a quarter-percentage point for the 11th straight time since June 2004, taking them to 3.75 percent. The Fed said the hit to economic growth from Katrina was likely to be temporary and that higher energy prices could add to inflation pressures. Anthony Chan, senior economist at J.P. Morgan Asset Management, said the August core inflation reading was within the Fed's "tolerance" zone. "I would not view these numbers as overly worrisome," he said. "In the wake of a surge in energy prices, you don't see a lot of it spilling over into the rest of the economy." Although spending proved weaker than expected in August as auto purchases plummeted, the decline followed two months in which consumers spent freely and economists said the fall was not particularly troubling. "The drop in August is just a pullback from that earlier surge in spending," said Gary Thayer, chief economist at A.G. Edwards and Sons in St. Louis. The spending decline pushed up the saving rate, the percentage of disposable income saved, to negative 0.7 percent from July's record low of minus 1.1 percent. A negative saving rate shows U.S. consumers eating into their accumulated wealth to spend. Homepage Other community sites http://www.business-business.biz Please support our sponsors: To design your custom retirement plan. http://www.retirement-plan.us For planning IRA rollovers. http://www.ira-rollover.us Professional asset allocation and the wonders it can do. http://www.asset-allocation.us Professional money management- Nationally ranked performance. http://www.roth-ira.us Managers selected to fit your needs. http://www.money-managers.us |
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