Consumer Spending Climbs 1.2% : Americans’ Savings Rate Hits All-Time Low in September

Americans continued their auto-buying spree last month, pushing consumer spending up by a giant 1.2%, but their income growth remained sluggish and their savings rate fell to an all-time low, the government reported Friday.

The Commerce Department said personal consumption spending rose four times as fast as the small 0.3% gain in personal income in September.

Consumers made up the difference by dipping into savings, pushing their savings rate to 1.9% of disposable income, the lowest figure since the government began keeping monthly savings data in 1959.

The combination of weak income growth and low savings could spell trouble for the economy, analysts said, if consumers cut back sharply on purchases in coming months.

Behind Last Year’s Pace

While consumer spending has been the driving force in the current recovery, economists said those gains must be supported by similar increases in income to be sustained.

This year, personal income has grown at a moderate 4.2% annual rate, far below last year’s 9.8% increase. While consumers have not pulled back on spending yet, economists say the reduction is long overdue.

“The consumer, like everybody else in this economy, is living beyond his means,” said David Wyss, economist at Data Resources Inc. “He is going to have to pull back and get the savings rate up to a more reasonable level.”

Data Resources is predicting that the overall economy will dip to growth of only 2.5% in the final three months this year and fall to a 1.5% rate in the first half of 1986. The government reported Thursday that the economy rebounded to a 3.3% growth rate in the July-September quarter, three times the pace of the first six months of the year.

Wyss said the coming slowdown will be caused in large part by lower consumer spending.

“Since consumer spending is two-thirds of the gross national product, when consumers slow down, the GNP slows down,” Wyss said.

The big 1.2% gain in spending in September matched the August increase. Both increases were attributed to heavy sales of new autos as buyers responded to attractive cut-rate financing packages being offered at the end of the model year.

However, analysts noted that, for the latest selling period--the first 10 days of October--car sales have declined sharply.

Robert Ortner, chief economist at the Commerce Department, said it is quite possible that retail sales will decline in one or two upcoming months as the 5% advance in consumer spending in the first nine months of this year moderates.

“This report suggests a much less robust consumer sector than we had in the first three quarters.” he said. “Consumers will not be pulling up the economy almost single-handedly anymore.”

Administration Hopeful

But Ortner predicted further moderate growth, at a rate of about 3%. He said this growth would come from inventory restocking by businesses, increased business investment spending and an improvement in the country’s trade performance as the dollar falls.

The Reagan Administration, which is predicting a sharp rebound of growth carrying over into next year, expressed continued optimism despite the wide disparity between the spending rate and income growth.

Presidential spokesman Larry Speakes said the gains showed “an economy that continues to grow at a healthy pace.”

In addition to a low savings rate, other statistics show that consumer debt has hit an all-time high of 19% of disposable income, topping the old mark of 17.8% in 1978.

The 0.3% advance in personal income, which was the same as the August increase, came in part from a $15-billion rise--at an annual rate--in wages and salaries, compared to a $10.7-billion August increase.

The bigger increase came despite the fact that payrolls in the manufacturing sector went up at an annual rate of just $400 million in September, down from a $2.1-billion August increase.

The manufacturing sector has been hit hard by foreign competition. Since the first of the year, America has lost 340,000 manufacturing jobs.

Farmers, also hurt by the country’s trade imbalance, saw their incomes decline at an annual rate of $800 million in September, following an even steeper $1.2-billion August drop.

Disposable, or after-tax, income rose just 0.2% in September, the same increase as in August.

The changes left personal income at an annual rate of $3.209 trillion in September, $10.1 billion higher than in August.