(Bloomberg) — Consumer spending in the U.S. unexpectedly dropped in September as incomes rose at the slowest pace of the year, indicating the economy will have difficulty sustaining a pickup in growth into the end of the year.
Expenditures decreased 0.2 percent last month, weaker than any economist projected in a Bloomberg survey, after rising 0.5 percent in August, Commerce Department figures showed today in Washington. Incomes increased 0.2 percent, the smallest gain since December.
Wages that are barely outstripping the pace of inflation may be restraining spending by some households, while slower increases in home prices and volatility in the stock market is also limiting wealth gains. Continued improvement in employment will be needed to further boost confidence and give consumers the means to spend at companies such as Kroger Co., the largest U.S. grocery-store chain.
“The decline was on the heels of a pretty outsized gain in August so some payback should have been expected,” though the size of the pullback was a surprise, said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York and the best forecaster of spending during the last two years according to data compiled by Bloomberg. “The quarter ended on relatively soft footing from a spending perspective, however consumer fundamentals remain fairly sound.”
Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in December rose 1 percent to 2,009.1 at 8:50 a.m. in New York, signaling benchmark indexes may rally to new records, as an unexpected boost in stimulus from the Bank of Japan spurred optimism in the global economy.
The median estimate of 81 economists in a Bloomberg survey called for a 0.1 percent gain in spending. Forecasts ranged from a 0.1 percent decrease to a 0.3 percent advance.
The Bloomberg survey median called for incomes to rise 0.3 percent, matching the August reading.
A report today from the Labor Department showed employment costs rose 0.7 percent in the third quarter, more than forecast and matching the increase in the previous three months. The gain was paced by a 0.8 percent advance in wages and salaries that was the biggest since the second quarter of 2008.
Today’s consumption data showed that after adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases dropped 0.2 percent last month after a 0.5 percent gain in August.
Spending on durable goods, including automobiles, decreased 1.9 percent after adjusting for inflation following a 2.3 percent gain. Purchases of non-durable goods, which include gasoline and clothing, declined 0.3 percent.
Household outlays on services rose 0.1 percent after adjusting for inflation. In addition to health care, the category also includes categories such as utilities, tourism, legal help and personal care items. This typically makes it difficult for the government to estimate accurately in the preliminary report.
Today’s report gave the monthly breakdown of the third- quarter data issued yesterday. That report showed consumer spending, which accounts for almost 70 percent of the economy, climbed at a 1.8 percent pace after growing at a 2.5 percent rate in the second quarter. The weak reading at the end of the quarter gives consumption little momentum heading into the last three months of the year.