Spending Soars, Savings Rate Falls to Record Low

Consumer spending soared in September as Americans’ auto-buying spree continued, but personal income gains remained sluggish, the government reported today.

The combination of heavy consumer purchases and weak income gains left the personal savings rate at the lowest level ever, 1.9% of disposable income, the Commerce Department said.

Personal income rose 0.3% in September, identical to the August increase.

Matches August Gain

The report showed that personal consumption spending jumped 1.2% in September, matching the strong August gain.

The two big increases were the result of heavy demand for new autos, spurred by attractive cut-rate financing packages offered by auto makers. While consumer spending has been a key force driving the current economic recovery, economists are worried that consumers may soon begin retrenching because of weak income gains and a record high level of consumer debt.

Consumer debt now stands at an all-time high of 19% of disposable income, topping the old peak of 17.8% set in 1978.

With this high a debt level and the big dip in the savings rate, many analysts are worried that consumer spending could soon plummet, thus seriously endangering the recovery.

The Reagan Administration has been counting on good gains in consumer spending to pull the economy out of the doldrums.

The big surge in auto purchases in the last two months helped to propel overall economic growth to an annual rate of 3.3% in the July-September quarter.

But many analysts questioned whether growth will slump in the final three months of the year as much of the pent-up demand for autos has been satisfied.

$15-Billion Pay Hikes

The improvement in personal income in September came from a $15-billion rise in wages and salaries, compared to a $10.7-billion August increase. Last month’s increase came despite the fact that manufacturing payrolls increased a small $400 million in September, down substantially from a $2.1-billion August increase.