Consumer spending climbed ahead of forecasts in September, which may help the U.S. overcome a stall in business investment and exports as global growth eases and concerns mount about the so-called fiscal cliff.
Household purchases, which account for an estimated 70 percent of gross domestic product, rose 0.8 percent, the most since February, after advancing 0.5 percent in August, according to a Commerce Department report Monday. The median estimate in a Bloomberg survey of 71 economists called for a 0.6 percent gain. Incomes climbed 0.4 percent, the most since March.
The results show how household spending fared at the time of the hand-off to the final quarter. Gross Domestic Product rose at a 2 percent annual rate from July through September, up from a 1.3 percent pace in the previous quarter, Commerce Department data showed last week. Consumer purchases grew 2 percent, following a 1.5 percent gain.
Meanwhile, companies are bracing for the fiscal cliff, the $607 billion in spending cuts and tax increases that are slated to take effect automatically next year unless Congress acts.
Companies also are cutting forecasts on slowing growth in Europe and Asia. The trade deficit expanded as exports dropped, subtracting 0.2 percentage point from third-quarter growth, last week’s report showed.
For consumers, a drop in the savings rate indicates the gain in spending “is not fully sustainable,” according to Stephen Stanley, chief economist at Pierpont Securities in Stamford, Ct. After the report, Stanley raised his forecast for spending in the fourth quarter to roughly 2.5 percent from an estimated 2 percent he previously estimated.
Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, purchases rose 0.4 percent after a 0.1 percent increase in the previous month, the report showed.
Cheaper gasoline, a lower unemployment rate and an improving housing market are boosting Americans’ moods. The Thomson Reuters/University of Michigan final gauge of sentiment advanced to the highest level since September 2007, before the recession began.
The Labor Department later this week is expected to report that payrolls advanced by 125,000 in October after rising 114,000 in September, according to the Bloomberg survey median. Unemployment rose to 7.9 percent from a three-year low of 7.8 percent, economists predicted.
“Household spending has advanced a bit more quickly,” Federal Reserve policymakers said in a statement last week after their meeting. “Growth in employment has been slow.”