Consumers spent less as incomes rose

Published: Tuesday, October 1, 2002 at 6:01 a.m.
Last Modified: Monday, September 30, 2002 at 10:38 p.m.
WASHINGTON - Consumers, upset by a falling stock market and rising job layoff notices, trimmed their spending a bit in August even as their incomes were picking up, the government said Monday.
The Commerce Department reported that personal consumption spending, which accounts for two-thirds of total economic activity, rose by only 0.3 percent in August after a red-hot 1 percent surge in July.
Americans' income growth, however, picked up a bit in August, rising by 0.4 percent after making no advance in July. In June, incomes had risen by 0.7 percent.
The 0.3 percent increase in spending was even slower than the 0.5 percent increase that many economists had forecast.
The overall U.S. economy, which was hit by the first recession in a decade last year, has been growing in fits and starts this year. Economic growth, as measured by the gross domestic product, rebounded at a sizzling 5 percent rate in the first three months of the year only to slow to a 1.3 percent rate in the April-June quarter.
Analysts are looking for that pattern to continue, with growth in the just-ending July-September quarter expected to come it at 4 percent or better before tailing off in the final three months of this year.
The slowdown is being predicted because of a belief that the consumer, who has been snapping up new cars and homes at record levels this year, will trim spending in coming months because of rising uncertainty about the future.
In its latest quarterly forecast of growth, the National Association for Business Economics said Monday that it expected growth for the second half of this year to average 3 percent and forecast the economy will grow at a 3.2 percent rate in 2003. That is down from a 3.7 percent rate for 2003 that NABE's panel of forecasters had predicted back in May.
"Economic growth may not be supercharged, but it is solidly positive," said Tim O'Neill, chief economist at Harris Bank in Chicago and incoming NABE president.
The reductions in growth expectations reflect a new wave of layoff notices issued as corporations continue to struggle with weaker-than-expected profits. The stock market, which had been roiled by corporate accounting scandals earlier in the year, has also been hitting new lows in recent weeks in part because of anxieties over about what a possible U.S. war in Iraq will do to oil prices and the overall economy.
The Federal Reserve passed up the chance to cut interest rates last week, leaving them at a 40-year low of 1.75 percent. But analysts said there is a growing possibility the Fed will cut rates because of all the turmoil to guarantee the country doesn't go into a double-dip recession.

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