Consumer Spending, Manufacturing Climb

U.S. consumer spending rose moderately in September as Americans dug deep to fill gas tanks, while hurricane insurance payments led to the biggest jump in income in 10 months, a government report showed Monday.

A separate report showed strong manufacturing activity in the Midwest last month, which economists said underscored forecasts for solid growth despite the recent storms.

Consumer spending climbed 0.5% in September after a 0.5% drop in August, the Commerce Department said. But soaring fuel costs ate into the September gain, which when adjusted for inflation turned into a 0.4% drop.

At the same time, income shot up 1.7%, the biggest rise since December, as insurance payouts increased at a $120-billion annual rate in the wake of recent hurricanes.

Separately, the National Assn. of Purchasing Management-Chicago said its index of Midwest manufacturing activity rose in October to 62.9 from 60.5 in September.

Analysts said that although the hurricanes made the spending and income data hard to read, the manufacturing report suggested that the U.S. economy was growing strongly.

“It reaffirms the view that the U.S. economy remains on a solid growth track,” said Alex Beuzelin, a senior market analyst at Ruesch International in Washington.

The September income gain followed a downwardly revised 0.9% drop in August, when retail and personal business income plummeted because of uninsured property losses caused by Hurricane Katrina, which hit the Gulf Coast on Aug. 29.

Stripping out hurricane-depressed rental and proprietors’ income and the subsequent boost from insurance benefits, the Commerce Department said personal income would have risen 0.5% in September and 0.3% in August.

The department’s inflation measure -- closely watched by Federal Reserve policymakers who will meet today -- shot up 0.9% in September, the biggest rise since February 1981.

But excluding food and energy, the core price index advanced 0.2%. Over the last year, this index has risen 2%, a level considered to be at the upper end of the Fed’s comfort zone.

The saving rate -- the percentage of after-tax income that Americans sock away -- remained in negative territory in September for a fourth straight month, showing that Americans continued to borrow or tap assets to fuel spending.

The report on Midwest manufacturing showed a surge in new orders and a pickup in hiring. Economists said the report suggested that factories were already stepping up production in the wake of a big drop in inventories in the third quarter.