Consumer spending, incomes bounce back


Published: Tuesday, November 1, 2005 at 6:01 a.m.
Last Modified: Tuesday, November 1, 2005 at 12:23 a.m.

WASHINGTON - 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.f-z

On Wall Street, the report boosted stocks. The Dow Jones industrials gained 37.30 points to close at 10,440.07.

Consumer spending accounts for roughly two-thirds of all economic activity.

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 to moderate in the final three months of this year as auto sales drop off with the waning of generous incentives and energy prices causing belt-tightening.

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