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Consumer Spending Skids in September : Economists See Further Slowing as Market Slumps

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From Reuters

American consumer spending fell in September for the first time in eight months, the Commerce Department reported today, and economists said the slumping stock market means that a further slowdown is in store.

Although personal income rose a strong 0.7%, or $25.4 billion, spending fell 0.5%, or $16.1 billion, as consumers bought fewer cars, the government said.

Purchases of durable goods, which include autos, fell $14.1 billion, reversing a buying binge on cars in August that had boosted total consumer spending by a revised 1.7%. The increase was originally reported as 1.5%.

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The combination of rising incomes and falling purchases pushed Americans’ savings rate, savings as a percentage of disposable income, to 3.3% from a historic low of 2.2% in August.

First Since January

Financial analysts had anticipated a slowdown in auto sales as buyers held back waiting for new models and financing incentives, but they had expected overall spending to drop no more than 0.2%.

The fall was the first since January, when spending fell 1.6%, and financial analysts are predicting further retrenchment because of the hundreds of billions of dollars of wealth that have been wiped out by the stock market crash.

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“We all know what’s happened in the first 20 days of October,” said Allan Leslie, an economist with Discount Corp., a New York securities firm. “Unless things really pick up, it presages very weak consumer spending.”

President Reagan warned last week that the economy could be tipped into a recession if consumers put off too many purchases, but his chief economic adviser took a more sanguine view today.

Beryl W. Sprinkel, chairman of the White House Council of Economic Advisers, said on NBC’s “Today” program that the Administration is not concerned about a recession.

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‘Some Slowdown’

“I think there is some reason to believe that there will be some slowdown in total spending,” Sprinkel said, but “we’re not concerned about a recession.”

“But when you lose a half trillion dollars in the marketplace, this is likely to encourage consumers to spend at a smaller clip. Also it might have some effects on capital spending,” he said.

The Commerce Department said the 0.7% gain in personal income in September was the largest since February, when income rose 1.1%.

The rise in income followed a 0.6% gain in August.

Farm income increased $4.4 billion in September after falling $6.6 billion in August. The swings in both months were attributed to federal subsidy payments.

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