Just in time for Christmas, U.S. consumer spending falls

U.S. consumer spending fell by the largest percentage in more than four years, according to figures released Friday.

The U.S. Commerce Department said American expenditures by individuals shrank 0.3 per cent in September compared to August. That was a larger contraction than the 0.2 per cent analysts had predicted and represented the biggest fall in the category since June 2004.

The September spending swoon, occurring just as turmoil in the financial sector was beginning, also comes as retailers already fear the worst for the crucial Christmas selling season.

"With suggestions that employment declines are possibly intensifying and that spending momentum faltered late in the third quarter, the risks are that consumer spending will likely continue to decline in the final quarter of the year," said Paul Ferley, assistant chief economist with RBC Economics in a commentary on the figures.

That could mean that stores, many of whom derive more than half of their yearly sales in the Yuletide season, are facing a bleak Christmas.

Already in the week, new figures showed that the U.S. GDP shrank for the July-to-September period, down by 0.3 per cent.

As well, the Conference Board index of consumer confidence hit its lowest level ever in October, 38, compared to 61.4 in September.

The sound of wallets closing

U.S. consumers spent approximately $36 billion US less in September compared to August. Since expenditures peaked in May, American individuals have cut their spending by more than $100 billion.

Ferley pointed out tax rebates handed out by Washington earlier in the year might have temporarily boosted spending by individuals in earlier months. Thus, the cash infusion might make September look worse than was actually the case.

"Some of the weakness in the quarter may have reflected personal spending returning to its previous trend level after being temporarily boosted by the tax rebate cheques issued in the second quarter," he said.

Still, the weak spending performance in United States comes even as individual income rose substantially in the month. Incomes were up 0.2 per cent for the month compared to August, twice as large a jump as analysts had expected.

Higher savings

More Americans appear to be putting the extra cash they are receiving into the bank.

Savings as a percentage of personal disposable income rose to 1.3 per cent in September versus 0.8 per cent for August. Even with the September gain, however, Americans are not saving income anywhere close to the five per cent peak reached in May.

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