Washington, DC, Mar. 3—Consumers, worried about a possible war with Iraq and their own financial prospects, cut spending 0.1% in January--the first decline in four months.
The 0.1% cutback came on the heels of a 1% increase in December. In January, consumers sharply cut spending on big ticket durable goods, which was the major factor behind the overall drop in spending for the month.
The cutback in spending came as Americans' incomes, including wages, interest and government benefits, went up by a modest 0.3% for the sixth straight month in January.
Both the spending and income figures, which are not adjusted for inflation, were weaker than economists were expecting. They were forecasting spending to go up by 0.2% and incomes to grow by 0.4% in January.
Worries about a war with Iraq, a rollercoaster stock market, a sluggish job market and sinking confidence in the economy are a few of the forces making consumers more cautious.
The 0.1% drop in spending in January marked the first and biggest decline since September, when consumers trimmed spending by 0.4%.
Unlike businesses, which have avoided making big financial commitments, consumers have been the main force keeping the economy going.
If a war were to break out, economists believe consumers initially would sharply cut back on their spending, a force that would slow the recovery. If the U.S. were to put a quick and successful end to the war, then consumers and businesses would probably return to more normal buying and investing behavior, helping economic growth. But if a war turns out to be drawn out and severe, the economy could be looking at a backslide into recession.
The Federal Reserve is expected to hold short term interest rates at 41 year lows of 1.25% when it meets next on March 18. Fed policy makers hope that by keeping rates so low consumers and businesses would be more inclined to boost spending and investment, helping along the recovery.
In January, consumers cut spending on durable goods, such as cars, by 5.7%, the biggest drop since February 1990, and a reversal from the 6.8% rise registered in December.
Spending on nondurables, such as food and clothes, went up by 1.3% in January, following a 0.4% increase. Consumers boosted spending on services, including travel and utilities, by 0.4%, up from a 0.1% advance in December.
Americans' disposable income rose 0.3% in January, down from a 0.4% rise in December.
With income growth outpacing spending, the nation's personal savings rate rose from 3.9% in December to 4.3% in January.
