Consumer Spending Down 1% In October

The Commerce Department reported that consumer spending plunged by 1% last month, even worse than the 0.9% decline that had been expected. The department said personal incomes were up 0.3% last month, slightly better than the 0.1% gain analysts had expected. Consumer spending accounts for two-thirds of total economic activity.

The government had reported the overall economy, as measured by the gross domestic product, was declining at an annual rate of 0.5% in the July-September quarter. With October's big drop in spending, the view is that the GDP decline for this quarter will be much steeper, with some analysts projecting the economy will contract at an annual rate of 4% this quarter, MSNBC reports.

Many economists believe the current recession will last through the middle of next year and will be the most severe downturn since the 1981-82 slump. Part of the fall in spending reflected declines in gasoline and other energy prices, which had been soaring earlier in the year. Adjusting for price changes, spending fell by 0.5% and it was the fifth consecutive decline, the longest stretch of spending declines since 1990-91, when the country was in a recession.

Over the past 12 months, core inflation is rising at a moderate annual rate of 2.1 percent. The moderation in inflation is expected to give the Federal Reserve room to cut interest rates further when policy-makers meet in December as the central bank devotes more efforts to keeping the country from falling into a prolonged recession. ❖