U.S. consumer spending in September posted its smallest gain in eight months as personal income barely rose, the government reported Friday, indicating that shoppers grew cautious at the end of the third quarter, cooling domestic demand after recent strong increases. The Commerce Department said consumer spending rose 0.1 percent, the weakest performance since spending actually declined in January. Spending rose 0.4 percent in August. Much of the September slowdown reflected a drop in energy prices, which resulting in a 1.2 percent decline in spending on non-durable goods such as gasoline. Spending on durable goods, a category that includes cars, rose 0.8 percent last month. Spending on services rose 0.4 percent. Income growth rose only 0.1 percent in September, the smallest gain in four months, after advancing 0.4 percent in August. Wages and salaries were flat last month following two consecutive months of strong gains. The savings rate rose slightly to 4.8 percent of after-tax income last month, compared to 4.7 percent in August. An inflation index for consumer spending fell 0.1 percent last month, the first decline since January, after being flat in August. In the last 12 months, the personal consumption expenditures (PCE) price index rose only 0.2 percent, the smallest increase since April. Consumer spending is closely watched because it accounts for 70 percent of U.S. economic activity. Spending rose at a strong 3.2 percent annual rate in the third quarter, although gross domestic product (GDP) growth slowed sharply to a 1.5 percent annual rate, mostly due to businesses reducing their inventories. Spending has increased at a rate of more than 3 percent in each of the last two quarters. Economists forecast that consumer spending will remain on track in the fourth quarter, reflecting further gains in employment that should give households more income to spend. Consumers also are benefiting from declines in energy prices that give them more money to spend on other items.
