Washington, DC, Oct. 31--Consumer spending fell in September, reflecting a dropoff in auto sales. Income edged higher but the savings rate fell to its lowest level in almost two years.
Personal consumption fell 0.3%, after a revised 1.1% increase in August, the Commerce Department reported Friday. Income rose 0.3%, after a revised 0.3% gain a month earlier.
Economists had expected spending to ease by 0.1% and income to climb 0.2%, according to a survey by Dow Jones Newswires and CNBC.
Personal saving as a percentage of disposable personal income fell to 2.9%, the lowest level since December 2001, from 3.5% in August.
"A sharp falloff in motor-vehicle sales--from the near-record pace seen in August--implied some pullback" in consumer spending, said David Greenlaw, an economist at Morgan Stanley, who anticipated that the report would show a fall in last month's spending.
Spending on durable goods, items such as cars that are meant to last three years or more, fell 5.1%, following an increase of 3.8% in August. Spending on nondurable goods such as food and clothing rose 0.3%, after a 1.4% rise in the previous month. Spending on services rose 0.4%.
Separately, the University of Michigan said its consumer-sentiment index rose to 89.6 in the final October report, from 89.4 in a midmonth reading and 87.7 in September. Measures of consumers' assessment of current conditions as well as expectations for the future also rose.
Since the war in Iraq, consumer sentiment has "drifted modestly lower despite a sharp acceleration in economic growth," wrote Steven Wood of Insight Economics, in a note to clients. "This largely reflects household concerns about the labor market. Once hiring picks up, consumer sentiment will improve as well."
In a third report, manufacturing activity in the Chicago area improved in October. The region's National Association of Purchasing Management reported its purchasing-managers index jumped to 55, after a dip in September to 51.2 from 58.9 in August. A reading above 50 indicates expansion, while anything below 50 points to a contraction.
Readings on production, new orders, prices paid and employment in the region were up, while inventories contracted sharply. The Chicago survey is often seen as a precursor to a national reading on the sector from the Institute for Supply Management, which is slated for release on Monday.
The Chicago report was actually stronger than the headline figure would suggest, wrote Bill Quan, an economist from Mizuho Securities, in a note to clients. He added that "individual components paint a brighter picture for the manufacturing sector."
But Henry Willmore, an economist at Barclays Capital in New York, said "Chicago has been a little erratic in recent years. I don't think it tells us much about ISM."
In the spending and income report, after-tax income fell 1%, reversing August's 1% gain. Many households received a boost in August from government tax rebates, which temporarily increased their disposable income.
Consumer spending accounts for about two-thirds of economic activity. In the third quarter, the economy expanded at a blistering 7.2% rate, the fastest pace in nearly 20 years, according to Thursday's report on gross domestic product. (See article.) Economists had expected consumer spending, to surge in the third quarter, boosted by the tax cuts. The overall economy is expected to cool down in coming months as the effect of those tax cuts fades.
An inflation measure in the report slipped. A price index for personal-consumption expenditures less food and energy rose at a 1.2% rate, down from August's 1.3% pace.
