Growth In Consumer Spending Slows

Friday, November 30th 2007, 12:56 pm
By: News On 6

WASHINGTON (AP) _ Consumers battered by a slumping housing market and a credit crunch slowed the growth in spending to the smallest amount in four months. In another sign of weakness, construction activity fell by a larger-than-expected amount.

The Commerce Department reported Friday that consumer spending edged up 0.2 % in October, the weakest showing since a similar increase in June. Individual incomes grew by just 0.2 % last month, the poorest showing in six months.

Meanwhile, a separate Commerce report showed that construction spending fell by 0.8 % last month, the biggest decline since July. Activity in the besieged housing industry fell for a 20th straight month while nonresidential construction weakened as well.

The weakness in consumer spending, incomes and construction raised new worries about spreading economic weakness caused by the steepest slump in housing in more than 20 years and a widening credit crisis triggered by rising mortgage defaults. Consumers are also being battered by surging prices for gasoline and other energy products.

``Consumers are still spending thought not nearly at the pace they had been,'' said Joel Naroff, chief economist at Naroff Economic Advisors.

While economists are expressing growing concerns about a possible recession, Federal Reserve Chairman Ben Bernanke signaled in a speech Thursday night that the central bank is prepared to cut interest rates further if needed to keep the country out of a full-blown downturn.

His comments followed similar remarks by Fed Vice Chairman Donald Kohn and have raised hopes that the central bank, which has cut rates at its last two meetings, will reduce them further when Fed officials meet again on Dec. 11.

Bernanke and other Fed officials have said the central bank needs to make sure that inflation pressures do not get out of hand given the recent jump in oil prices to nearly $100 per barrel.

They got good news on that front Friday. A gauge of core inflation tied to consumer spending edged up just 0.2 % in October and is up only 1.9 % over the past year. That increase is within the Fed's 1 % to 2 % comfort range for core inflation, which excludes energy and food.

The 0.8 % drop in construction was far bigger than the 0.2 % dip that had been expected. Private residential construction fell by a sharp 2 %, the 20th straight decline in this troubled sector.

Private nonresidential construction, which had been helping to cushion the housing downturn, dropped by 0.5 %, the first decline in this category in 13 months. The only strength came in government activity, which was up 0.8 % as spending on state and local projects hit an all-time high.

Analysts said the 0.2 % gain in consumer spending represented a slow start to the fourth quarter with even further weakness expected as the full impact of recent declines in consumer confidence weigh on spending during the current holiday shopping season.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said that he believed consumer spending would rise by just 1 to 1.5 % in the current quarter and he said a reading below 1 % can't be ruled out. In the third quarter, consumer spending posted a solid 2.7 % rate of increase.