Americans’ spending, the biggest part of the economy, jumped in September by the most since 2009. A look at how it came about tells a less rosy story.
After-tax incomes adjusted for inflation were stagnant after falling 0.1 percent the prior month, Commerce Department figures showed Monday. Over the last four months, real disposable income was little changed. Sure, wages advanced moderately, but a sustained pickup remains elusive in the current expansion that began in mid-2009 despite robust hiring and an unemployment rate at a 16-year-low.
What’s more, the saving rate slumped to the lowest since December 2007, the month the last recession began, as households tapped their bank accounts to spend. That, along with a pickup in borrowing, makes it less likely that the economy will benefit from a sustained acceleration in consumer spending.
“The continued drawdown in the saving rate will likely limit how much further consumption can accelerate,” Blerina Uruci, an economist at Barclays Plc, wrote in a note after the report. Barclays still expects spending to be “solid” in the fourth quarter, consistent with strong employment, personal income and consumer confidence data.
The 1 percent jump last month in nominal purchases probably overstated the true strength of household spending. The last time outlays rose as much was in mid-2009 when auto purchases were fueled by a federal government incentive program called “cash-for-clunkers,” only to slump the following month.
The latest report showed inflation-adjusted purchases of motor vehicle purchases climbed 9.9 percent in September from the previous month, fueling a 3.5 percent gain in durable-goods purchases as people replaced vehicles damaged by the hurricanes.
In any case, economists expect household consumption to settle into a more sustainable, though decent pace. That’s OK, as growth in the overall economy is now also getting help from capital investment and export gains.
Finally, improvement in the finances of Americans across the board would be another way to lift the outlook for spending. While higher property values and record stock prices are helping generate income, most of the increase has benefited the wealthiest. Such a concentration of wealth is why faster wage growth is vital to propel consumer spending and the economy.