Consumers Cut Spending For First Time in Two Years

U.S. consumers cut their monthly spending for the first time in two years during September, evidently bracing for hard times as jobs continue to disappear and credit conditions tighten.


A Commerce Department report on Friday showed that consumer spending shrank by 0.3 percent in September and was flat in both August and July. That was in line with forecasts by Wall Street economists surveyed by Reuters and underlined the steady weakening in spending, which fuels two-thirds of U.S. economic activity.

The decline in monthly spending was the first in two years and the largest since a matching 0.3 percent fall in May 2005.

Many private-sector economists consider the U.S. already has entered a recession, especially since a report on Thursday that showed gross domestic product contracted during the third quarter.

Income from wages and salaries and other sources gained by 0.2 percent in September, half the 0.4 percent rise posted in August. Incomes had been boosted earlier in the year by government economic stimulus payments but that had largely disappeared by September.

Price pressures moderated slightly in September. The year-over-year rise in the personal consumption expenditures index eased to 4.2 percent from 4.5 percent in August. Core prices, which exclude food and energy, rose 2.4 percent in September, slowing from 2.5 percent a month earlier.

In related economic news, U.S. employment costs rose 0.7 percent as expected in the third quarter and wages and salaries grew 0.7 percent.

The Labor Department's Employment Cost Index, a broad measure of wages and benefits, grew by 0.7 percent in the two preceding quarters as well.

Wages and salaries rose by 0.7 percent in the third quarter, after a 0.7 percent rise in the second quarter.

In addition, benefits rose by 0.6 percent in the third quarter.

The twelve-month rise in total compensation was 2.9 percent, the lowest since March 2006, a Labor Department official said.