Consumer Spending Decelerates

by: Roy Mehta

The Commerce Department said Thursday September saw the slowest growth in consumer incomes and spending since late spring. The data showed disposable income increased 0.4% and spending rose 0.3%, both in-line with economists estimates. Income and spending growth are essential in an economy that is being dragged down by an extended housing slump. Michael Carey, chief economist at Calyon Corp., does not see increased growth by the end of the year: "Consumer spending is going to slow as we get into the fourth quarter. Consumers may be a bit cautious," he said. Separately, the personal consumption expenditure index, a key inflation gauge, rose 0.2% in September. The core PCE index, which excludes food and energy prices, increased 0.2% as well, and is now up 1.8% for the year. The Fed has an informal target for the core PCE of 1%-2%. Meanwhile, in the labor markets, the Labor Department announced initial jobless claims fell by 6,000 to 327,000. Despite the drop, the four-week average still increased to levels at which economists see signs of a softening labor market. With uncertainty surrounding the labor market and consumer spending and skyrocketing energy prices, economists say the U.S. economy may have bumpy ride ahead of it to close out the year.

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