Americans’ personal income rose a moderate 0.5% in September and consumer spending turned in its weakest performance in almost a year, the government said Thursday in reports that offered fresh evidence that economic growth is slowing.
The Commerce Department said personal consumption spending, which accounts for two-thirds of overall economic activity, was unchanged in September after a 0.6% August rise.
It was the first time spending had failed to advance since a 0.2% drop in October, 1987. That decline had been blamed in part on consumer anxiety from the record stock market plunge.
When the rise in prices is taken into account, consumer spending actually fell 0.5% last month, the department reported. The 0.5% rise in income was also completely erased by rising inflation, it said.
Analysts said the weakness in consumer spending and the modest income advance in September showed that the economy is likely to slow in coming months.
“Consumers are being more tight-fisted because their incomes are going nowhere,” said Bruce Steinberg, an economist with Merrill Lynch brokerage. “They already have so much debt that they are unwilling to borrow any more.”
Steinberg predicted that consumer spending, which has been the driving force behind the current economic expansion, would show only modest gains over the coming year and that this would contribute to an expected overall economic slowdown.
The government reported Wednesday that the overall economy, as measured by the gross national product, rose at an annual rate of just 2.2% from July through September. It was the slowest pace in almost two years and followed GNP growth of 3.2% in the first half of 1988.
Many economists believe this slowdown will continue over the next year, with the biggest question being whether growth will become so weak that it could topple the country into a recession.
Sandra Shaber, an economist with Futures Group, said she believed that consumer spending, while slowing, would remain strong enough to support economic growth of about 2.5%.
“Consumer confidence remains reasonably strong. They are spending at a rate equal to their income growth. It is just that income growth has been weak,” she said.
Income rose $19.9 billion in September to a seasonally adjusted annual rate of $4.1 trillion, before taking inflation into account, the Commerce Department said. That 0.5% rise followed gains of 0.3% in August and 0.7% in July.
Personal income was held back by a $6.5-billion decrease in farm income as the widespread summer drought cut output. Farm subsidy payments were unchanged.
Wages and salaries, a key component of personal income, were up at an annual rate of $14.1 billion in September. That 0.6% increase followed a lackluster 0.2% August gain.
The weakness in personal consumption spending, which was stuck at an annual rate of $3.26 trillion, reflected a $3.1-billion drop in purchases of durable goods, such as autos and appliances.
Non-Durables Edge Up
Purchases of services rose $3.4 billion, less than one-third of the increase in August. Analysts said the services category, which includes housing costs, had been inflated in previous months by higher electricity bills because of the summer heat wave.
Purchases of non-durable goods, items not expected to last three years, showed a small increase of $400 million.
Disposable, or after-tax income, rose by 0.5% in September after a 0.3% August increase. Personal tax payments in September, one of four payment months for taxpayers filing quarterly returns, were up $3.6 billion after an increase of $2 billion in August.
With spending showing no growth while incomes were rising, the savings rate, savings as a percentage of disposable income, climbed to 4.2% last month, the highest level since May. The savings rate was 3.8% in August.
In another economic report, the Labor Department said the price of imported goods fell by 1.1% from July through September, the first such decline in more than two years.
The price decrease reflected a drop in crude oil prices and the fact that the dollar strengthened somewhat against foreign currencies during the summer. A stronger dollar lowers the cost of imported goods to Americans. However, economists say the dollar will need to fall still further for the United States to make more progress in reducing its huge trade deficit.
The price of U.S. exports, which have been booming this year, rose by 2% in the third quarter and are 8.7% higher than they were a year ago.