Personal Income Increased 0.7% In September --- Consumer Spending Fell; Further Drop Expected Because of Market Crash
WASHINGTON -- A drop in car sales drove consumer spending down 0.5% in September, while personal income rose 0.7% for the biggest gain since February, the Commerce Department said.</br></br>The spending decline was widely expected in response to the petering out of the auto incentives that had caused a revised 1.7% spurt in outlays in August. Many analysts now expect further weakness as a result of the stock-market crash, which they contend has dealt a blow to household wealth and consumer confidence.</br></br>"We certainly expect that spending will be hurt by the drop in the stock market," said Sara Johnson, an economist at Data Resources Inc. in Lexington, Mass. "The big decline in the value of household financial assets is likely to make the consumer much more cautious about big-ticket items and taking on additional debt."</br></br>Even before the crash, she and other economists were expecting sluggish outlays ahead as consumers rebuild their savings after strong spending on cars and other items in the third quarter. Savings rose to 3.3% of after-tax income in September from 2.2% in August.</br></br>Richard Peterson, senior vice president at Continental Illinois National Bank & Trust Co. in Chicago, said spending is likely to be restrained by the effect of the loss in household wealth, though he said the restraint could be tempered somewhat by the drop in interest rates. In any event, he said he was already expecting a decline in outlays in October as a result of the auto-sales effect.