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Consumer Spending Bounces Back in Sept.
Monday October 31, 8:37 am ET
By Jeannine Aversa, AP Economics Writer

Consumer Spending Bounces Back in September; Incomes Also Grow Briskly

WASHINGTON (AP) -- Consumers got back into a buying groove and boosted their spending by a solid 0.5 percent in September. Incomes also grew briskly.
The latest figures, released Monday by the Commerce Department, suggested that the economy is holding up well to the double blows of Hurricanes Katrina and Rita.

The 0.5 percent rise in consumer spending in September came after spending fell by that amount in August, reflecting the hit from Katrina.

Americans' incomes, meanwhile, increased by 1.7 percent in September, the largest gain since December 2004. That marked an improvement from the 0.9 percent plunge in incomes in August -- a decline that largely reflected fallout from Katrina.

The spending and income figures aren't adjusted for inflation.

Even though the economy is weathering the storms, they certainly packed a punch. Uninsured losses to residential and business property reduced incomes by about $5 billion on an annualized basis in September and by about $240 billion, annualized, in August, the government estimated.

Spending growth for September matched economists' expectations. The increase in income was larger than forecast.

Consumer spending accounts for roughly two-thirds of all economic activity and is closely watched by economists.

Despite the sting of high energy bills, consumers spent briskly in the third quarter, helping the economy grow by an energetic 3.8 percent annual rate, the government reported last week.

Consumer spending in the July-to-September quarter reflected a big appetite for big-ticket durable goods, such as cars, which had been discounted and promoted to lure buyers.

Economists expect consumer spending probably will moderate in the final three months of this year as auto sales drop off with the waning of generous incentives and energy prices cause belt-tightening.

Analysts are predicting that any moderation in consumer spending, however, will be more than offset by stronger spending elsewhere, which should allow the economy to grow at a solid pace in the current October-to-December period.

Even though consumers spent solidly in September, their confidence in the economy has been sinking and they are growing anxious about President Bush's economic leadership. The public's perception has been shaped by high energy bills, the hurricanes and job losses wracked up from the disaster, analysts said.

Katrina, the costliest natural disaster in U.S. history, struck in late August; Rita hit in late September. Both hurricanes destroyed businesses and homes and choked the flow of trade. They also hobbled oil and gas facilities, driving energy prices higher and fanning fears of inflation.

To combat inflation, the Federal Reserve is expected to boost interest rates by another quarter-point on Tuesday, the 12th increase of that size since June 2004.