Washington, DC, Nov. 27--Consumers rebounded from a September slump, increasing spending by a solid 0.4% in October. It was the biggest increase in three months.
According to the Commerce Department, October's surge was led by higher spending for nondurable goods, such as clothes and food. Consumers had cut their spending by 0.4% in September as economic uncertainties made them more cautious.
Americans' incomes, including wages, interest and government benefits, edged up by 0.1% in October, following a 0.4% advance the prior month.
October's spending figure was slightly stronger than the 0.3% increase that many analysts were predicting, while income growth was in line with projections.The 0.4% increase in consumer spending in October was the largest since a 1.1% jump in July.
In other encouraging news, new claims for unemployment benefits dropped last week to a 21 month low, according to the Labor Department. New claims for jobless benefits fell by a seasonally adjusted 17,000 to 364,000, the lowest level since February 17, 2001. The report beat analysts' expectations. They were forecasting a rise in new claims.
So far this year, consumer spending has been supported by a number of factors. They include: low interest rates, 0% financing offers, rising home values and extra cash left from a mortgage refinancing boom. Those factors have been offsetting negative ones, including the roller-coaster stock market and worries about a war with Iraq.
In October, consumer spending on nondurable goods rose by 0.7%, a turnaround from the 0.1% drop in September. Spending on services went up 0.5%, on top of a 0.4% increase. But spending on durable goods--big ticket items, such as cars and appliances--dropped by 1%, a much smaller drop than the 5.1% decline in September.
A reduction in spending on cars was a big factor behind the drop in spending on durable goods in both September and October. Car sales have been extremely brisk for much of the year as people have taken advantage of 0% financing and other deals. But sales have been slowing recently.
