Oct. 29, 2012 at 8:37 AM ET
Shoppers spent more in September than they did in August, government data showed Monday, in another sign that the economy appears to be gathering some momentum.
Consumer spending, which accounts for the lion's share of economic activity, rose a higher-than-expected 0.8 percent last month, the Commerce Department reported, versus an unrevised 0.5 percent increase in August. Income rose 0.4 percent in September versus a 0.1 percent rise in August.
Economists polled by Reuters had expected spending to rise 0.6 percent.
With only days left until the presidential election pitting incumbent President Barack Obama against the Republican former governor of Massachusetts Mitt Romney, the economy has been showing signs lately of improving. It remains to be seen whether the more positive data will help Obama win a second term or whether it has come too late to aid his chances.
Economic growth accelerated slightly in the third quarter, but fell short of what is needed to put a deep dent in the 7.8 percent jobless rate. Investors (and voters) will get a last glimpse of the employment picture on Friday, when the government releases the jobs report for October.
When adjusted for inflation, consumer spending increased 0.4 percent after edging up 0.1 percent the prior month.
Financial markets showed little reaction to the data. U.S. stock markets will be closed on Monday, and possibly on Tuesday, as a mammoth storm threatens the U.S. East Coast.
The figures were incorporated in last Friday's third-quarter gross domestic product report. Consumer spending increased at a 2 percent annual pace in the third quarter after rising at a 1.5 percent pace the prior period.
The spurt in spending as the quarter ended, which was concentrated in long-lasting goods such as autos and Apple Inc's iPhone 5, suggests some of the momentum could carry through the remainder of the year. However, challenges remain.
While overall income last month grew 0.4 percent, the most since March and a step-up from August's 0.1 percent, the amount of money at the disposal of households after accounting for inflation and taxes was flat.
That meant households cut back on saving to fund purchases. This and sluggish job growth could hamper spending over the long-term. The saving rate slipped to 3.3 percent last month, the lowest since November 2011, from 3.7 percent the prior month.
"Households were only able to boost consumption in the third quarter by dipping into their savings," said Paul Dales, senior U.S. economist at Capital Economics. "Faced with the prospect of major tax hikes in the New Year, however, they will soon become more cautious."
Reuters contributed to this report.