Income Rises but Consumer Spending Falls : 0.5% Decline is First Setback Since January

Americans’ personal income climbed 0.7% in September, the biggest improvement since February, but consumer spending suffered its first setback since January, the government reported Monday.

The Commerce Department said personal consumption spending dropped by 0.5% last month, the first decline since a 1.6% plunge in January. Spending rose 1.7% in August.

Consumer spending is being closely watched following the record fall in the stock market last week. Many economists are predicting weak spending in the months ahead because of shaken consumer confidence.

Since consumer spending accounts for two-thirds of overall economic activity, a cutback in this area--if it lasted for several months--could topple the country into another recession.

The September drop in spending was attributed to a cutback in car sales following a big jump the previous month, which had been spurred by incentive programs offered to consumers in an effort to reduce high inventory levels.

Services Gain

Spending for autos and other durable goods shot up at an annual rate of $30.3 billion in August but fell at an annual rate of $14.1 billion in September.

Spending for non-durable goods, items not expected to last at least three years, fell by $4.2 billion in September following an August increase of $7.3 billion.

Purchases of services, including housing costs, increased $2.3 billion after a $14.3-billion rise in August.

The 0.7% rise in Americans’ income followed a 0.6% increase in August and was the largest gain since a 1.1% jump in February.

The gain included a $13.4-billion rise in wages and salaries, which followed a $19.3-billion rise in this key category 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.

Disposable, or after-tax, income rose 0.7% in September, compared to a 0.5% rise in August. This was the biggest increase in after-tax income since a 1.4% advance in February.

The combination of rising income and falling purchases pushed Americans’ savings rate--their savings as a percent of disposable income--to 3.3% from an historic low of 2.2% in August.