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U.S. Consumer Spending Slides, Savings Rate Gets a Boost

Are United States consumers taking a reprieve from spending or are they just biding their time for the busy holiday season just around the corner? This question comes as new data suggests spending is down, while savings is up.

The Department of Commerce released a new report Friday which looked at consumer trends in the month of September. According to the report, Americans slashed spending, gas prices dropped, consumers purchased fewer cars and households gave their savings a shot in the arm.

“Today’s advance estimate of real GDP shows that America’s economy is coming back,” said U.S. Secretary of Commerce Penny Pritzker in a statement. “Recent data show that the U.S. economy has rebounded more strongly than most others around the world, leading the global recovery. We must build on this momentum by doing everything we can to spur job creation and lift incomes for American workers, as President Obama has called for. We must keep this economy moving forward and create more jobs by making long overdue investments in our infrastructure, strengthening regional manufacturing innovation hubs, helping more companies export to new markets around the world, and ensuring workers have the skills needed to succeed in a competitive global economy.”

Here are the data specifics:

Spending

Consumer spending fell last month for the first time in eight months. The report noted that spending dipped 0.2 percent as demands for goods declined and services inched upwards only slightly. This suggests that the economy lost some momentum in September, a time when society returns to normal: workers are back working, students are back studying and vacationers are back home.

Overall sales in most of the major categories, such as clothing, food, household appliances and recreation, tumbled.

Economists who were polled by Reuters had projected consumer spending to rise slightly by 0.1 percent. Financial experts were quick to exert that September’s statistics will only be a minor setback to the overall economy.

Spending is closely monitored because it represents more than two-thirds of the national economy.

Income & Savings

Last month, personal income jumped 0.2 percent, down from the previous month’s 0.3 percent. This allowed income to actually outpace consumption, which helped savings to increase to $732.2 billion from $702 billion in August. This is now the highest level since Dec. 2012.

The national savings rate went a little bit higher by 0.2 percent to 5.6 percent.

Gas Prices Drop

The trend of gas prices dipping persists. With oil production in the U.S. ramping up, gas prices were able to drop once again last month, which is permitting consumers to pocket the cash. This is why consumers are optimistic about the next few months because lower gas prices means additional money to spend throughout the holiday period.

Auto Sales Fall

Automobile sales weakened last month primarily due to the early Labor Day promotions that shifted sales to August. Total auto sales slowed to 16.4 million from previous month’s 17.5 million. Analysts say car and truck sales will pick up again this month.

Conclusion

Analysts are hoping that consumers are simply sitting on their income growth and setting aside the additional cash for the upcoming holiday season. As we reported, the National Retail Federation (NRF) projects a 4.1 percent increase in holiday shopping this year, the highest in three years.

In addition, economists say that after five consecutive years of less than modest growth, the economy is finally revving up because of strong employment growth. This level of optimism can be distributed to the Federal Reserve, too, which ended its monthly bond-buying program this week, otherwise known as quantitative easing three. After several years, it maintains a balance sheet of more than $4 trillion.

Meanwhile, economists project an interest rate hike sometime in the middle of next year. Fed officials say it will all depend on how well the economy is performing next year.

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