Consumer spending increased somewhat in September, but income grew by the largest amount in 10 months, a federal report says.
The U.S. Department of Commerce said income rose 1.7 percent, due in part to post-hurricane insurance payouts, which increased at a $120 billion annual rate, Reuters reported. Consumer spending increased 0.5 percent in September, but when the figures were adjusted for inflation, the increase turned into a 0.4 percent drop because soaring fuel prices eroded the gains.
Consumer spending amounts to about two-thirds of all economic activity. The report showed the spending went up on “nondurables,” such as food, clothes and gasoline, but dropped for bigger ticket items, such as cars.
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Analysts said that Hurricanes Katrina and Rita made the spending and income data difficult to interpret.
The income figures for August had been revised downward to a 0.9 percent drop, due to the uninsured business property losses in the Gulf Coast caused by Hurricane Katrina, which hit August 29.
The Commerce Department reported that by removing the depressed rental and proprietors' income and the income increase from insurance that followed, personal income would have grown by 0.5 percent in September and 0.3 percent in August.
"We don't get away scot-free, but the underlying economy remains tough and sturdy," Mark Zandi, chief economist at Economy.com, told the Associated Press.
Analysts expect consumer spending to drop off in the last quarter of the year, as Americans will have to dig deeper to pay energy costs. Auto sales incentives are also ending.
"We will see a moderation - but not a collapse - in consumer spending," predicted Anthony Chan, senior economist at JP Morgan Asset Management, according to AP.
A separate report on Midwest manufacturing noted increases in new orders and new hires. An index of Midwest manufacturing activity rose in October to 62.9 from 60.5 in September, according to the National Association of Purchasing Management-Chicago.
"It reaffirms the view that the U.S. economy remains on a solid growth track," Alex Beuzelin, a senior market analyst with Ruesch International in Washington, told Reuters.