U.S. consumers increased their spending in September by the fastest rate since late winter, but at the expense of sharpy reducing their savings.
Consumer spending rose a seasonally adjusted 0.8% last month while personal income climbed at a slower 0.4% pace, the U.S. Commerce Department reported.
Economists had forecast a 0.7% increase in consumer spending and a 0.4% rise in personal income.
Because spending once again rose faster than wages, the savings rate of Americans fell to 3.3% from 3.7% in August and 4% in July. The sharp drop in savings suggests the recent pace of spending might not be sustainable, however.
Consumer spending represents as much as 70% of the U.S. economy and is usually the biggest driver of growth. When Americans buy more goods and services, businesses generate higher sales and profits and can afford to hire extra workers. Less spending by consumers, on the other hand, results in slower economic growth.
The U.S. economy expanded at a 2% pace in the third quarter, up from 1.3% in the prior three-month period, largely because consumers boosted outlays. A surge in defense spending and the ongoing recovery of the housing market also contributed. The government released its initial estimate of third-quarter GDP on Friday. Read more on U.S. GDP.
Earlier reports from U.S. retailers indicate that consumers spent a sizable amount of money in September on new autos. Carmakers are having a strong year of sales.
The latest iPhone was also a big seller last month.
At the same time, though, consumers had to spend more on gasoline after a late-summer spike in prices. Adjusted for inflation, consumer spending rose at a more moderate 0.4% clip. And real disposable income, or money leftover after taxes and inflation, was flat.
The need for Americans to devote more cash to basic necessities such as fuel or food reduces discretionary spending on other goods and services that are seen as more important to the nation’s growth.
Since wages are not rising very fast, many economists expect choppy consumer spending patterns in the months ahead. Over the past few years, stretches of strong spending have usually been followed by lulls as Americans shored up their savings.
Wages will have to rise at a faster rate — and companies will have to boost hiring — to support sustained increases in consumer spending, economists believe.
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