Americans cut back on spending in October while their income remained flat. The weakness in part reflected disruptions from superstorm Sandy that could slow economic growth for the rest of the year.
The Commerce Department said yesterday consumer spending dropped 0.2 percent in October. It was the weakest figure since May and compared with a 0.8 percent spending increase in September. Income had risen 0.4 percent in September.
Work interruptions caused by the storm reduced wages and salaries in October by about $18 billion at an annual rate, the government said.
Consumers may also be scaling back on spending because of fears about the "fiscal cliff," automatic tax increases and spending cuts that will take effect in January if Congress and the Obama administration fail to strike a budget deal by then.
"The upshot is that although both incomes and spending will probably bounce back in November, the underlying trend is weak," said Paul Dales, senior U.S. economist at Capital Economics.
The depressed spending figures suggest the economy is growing more slowly in the October-December quarter than in the July-September quarter.
Dales predicts U.S. economic growth will tumble from the 2.7 percent annual rate in the July-September quarter to a weak 1 percent in the October-December period. That's too low to lower the unemployment rate, now at 7.9 percent.
Even discounting the effects of Sandy, income and spending gains would have been meager. Income would have risen a still-weak 0.1 percent. Spending would have been essentially flat, Dales estimated.
Many economists say growth will rebound in the New Year once the rebuilding phase begins in the Northeast.