Consumer spending turned higher in September and incomes grew briskly, suggesting the economy is holding up well to the double blows of Hurricanes Katrina and Rita.
The 0.5 percent rise in consumer spending came after spending fell by that amount in August, reflecting the hit from Katrina, the Commerce Department reported Monday.
Americans’ incomes, meanwhile, increased by 1.7 percent in September, the largest gain since December 2004, boosted in part by post-hurricane insurance payments. The growth in income marked an improvement from the 0.9 percent plunge posted in August — a decline that largely reflected fallout from Katrina.
The spending and income figures aren’t adjusted for inflation.
Even though the economy is weathering the storms, they certainly packed a punch. Uninsured losses to residential and business property reduced incomes by about $5 billion on an annualized basis in September and by about $240 billion, annualized, in August, the government estimated.
“We don’t get away scot-free, but the underlying economy remains tough and sturdy,” said Mark Zandi, chief economist at Economy.com.
Spending growth for September matched economists’ expectations. The increase in income was larger than forecast.
On Wall Street, the report helped to boost stocks. The Dow Jones industrials were up 70 points and the Nasdaq gained 26 points in morning trading.
Consumer spending accounts for roughly two-thirds of all economic activity and is closely watched by economists.
In September, consumers trimmed spending on big-ticket “durable” goods, such as cars. But they boosted spending on nondurables, such as food, clothes and gasoline, as well as on services, a broad category that also includes some energy-related things.
When consumer spending is adjusted for inflation, however, the spending picture looks softer. Overall spending dipped 0.4 percent in September, following a 1 percent drop in August.
Still, despite the sting of high energy bills, consumers spent briskly in the third quarter as a whole. That helped the economy grow by an energetic 3.8 percent annual rate, the government reported last week.
Economists, however, expect consumer spending probably will moderate in the final three months of this year as auto sales drop off with the waning of generous incentives and energy prices cause belt-tightening.
“We will see a moderation — but not a collapse — in consumer spending,” predicted Anthony Chan, senior economist at JP Morgan Asset Management.
Chan and other analysts are hopeful that any moderation in consumer spending will be more than offset by stronger spending elsewhere, which should allow the economy to grow at a decent pace in the current October-to-December period.
Monday’s report also showed that Americans’ personal savings rate — savings as percentage of after-tax income — stayed in negative territory in September at minus 0.4 percent. In August, the savings rate was negative 1.8 percent.
Consumers’ confidence in the economy has been sinking and they are growing anxious about President Bush’s economic leadership. The public’s perception has been shaped by high energy bills, the hurricanes and job losses wracked up from the disaster, analysts said.
Katrina, the costliest natural disaster in U.S. history, struck in late August; Rita hit in late September. Both hurricanes destroyed businesses and homes and choked the flow of trade. They also hobbled oil and gas facilities, driving energy prices higher and fanning fears of inflation.
An inflation gauge tied to Monday’s report showed prices — excluding food and energy — was up 2 percent in September from a year ago.
Analysts said the inflation figure is in the upper end of the Federal Reserve’s inflation comfort zone and suggested policymakers will keep raising interest rates. The Fed is expected to boost interest rates by another quarter-point on Tuesday, the 12th increase of that size since June 2004, to combat inflation.