U.S. Consumer Spending Increases as Savings Drop

After natural disasters damaged motor vehicles in Florida and Texas households, American consumer spending reported the biggest increase in more than 8 years in September. Many households looked into savings to fund purchases last month which marked the lowest level since 2008. Consumer spending accounts for more than 2/3 of American economic activity which increase 1% last month after a 0.1% gain in August. Spending was forecasted to increase by 0.8% in September as spending growth slowed to a 2.4% annualized rate after a 3.3% pace in the second quarter. An increase in business spending on equipment, inventory investment, as well as a fall in imports has left the economy growing at a 3% rate in the third quarter.

September’s consumer spending reported purchases of motor vehicles by drivers in Florida and Texas to replace automobiles destroyed by Hurricanes Harvey and Irma. Last month’s auto sales surged 3.2%. Food and energy personal consumption expenditures rose 0.1% in September. The total savings fell to $441.9 billion that same month, compared to $521.4 billion in the prior month. The savings rate dropped 5/10 of a percentage point to 3.1% marking the lowest level since December 2007.

“The low savings rate is expected to be a larger constraint on consumer spending in the months ahead and could lead to higher delinquency rates for some categories of consumer credit if real income growth continues to lag,” said Scott Anderson, chief economist at Bank of the West in San Francisco.

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