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Consumer spending falls
Engine of world's largest economy slows in January, government says, while income rises.
March 3, 2003: 1:11 PM EST

NEW YORK (CNN/Money) - U.S. consumer spending fell in January, the government said Monday, due largely to a dramatic pull-back in automobile sales.

The Commerce Department said personal spending fell 0.1 percent, compared with a revised gain of 1.0 percent in December, while personal income rose 0.3 percent, compared with a revised 0.3 percent gain in December. Economists, on average, expected income to rise 0.4 percent and spending to rise 0.1 percent, according to Briefing.com.

"The reason spending dropped in January was a big fall in auto sales," Putnam Investments economist David Kelly said. "I don't think this tells us much that's new -- it's consistent with an economy still growing in second or third gear."

The report had little impact on U.S. stock prices, which rose early and turned mixed in mid-day trading. Treasury bond prices fell.

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Consumer confidence plunges

Economists pay close attention to consumers, whose spending makes up more than two-thirds of total U.S. gross domestic product (GDP).

Consumers have shown amazing resilience despite a recession in 2001, nearly 2 million job cuts, terrorist attacks, a three-year bear market in stocks and other woes.

But consumer confidence has plunged in recent months to the lowest levels since the fall of 1993. The consumer confidence index of the Conference Board, a New York-based research group, has fallen more than 30 percent in the past year, and similar one-year drops of that size in the past 35 years have always resulted in recessions.

Though consumer income increased in Monday's report, the Commerce Department said the gain was boosted by artificial factors. Excluding those factors, income actually rose 0.2 percent.

Private wages and salaries fell 0.02 percent in January, the worst performance since a 0.5-percent decline in July 2002, after rising 0.2 percent in December. Consumers saved 4.3 percent of their disposable income, up from 3.9 percent in December.

"The recent weakness in wage and salary growth is bad news for retailers, since wages and salaries, which account for more than 56 percent of personal income, tend to influence spending decisions far more than other income sources," said Mark Vitner, senior economist at Wachovia Securities.

Consumer spending on durable goods, items such as cars and refrigerators that are meant to last three years or more, fell 5.7 percent, the biggest drop since a 6 percent decline in February 1990.

Much of that drop came as automakers withdrew some of the aggressive incentives, such as zero-percent financing, that had driven robust auto sales in prior months.

"Given the sharp falloff in vehicle sales, the modest decline in overall spending was actually very good news," said Joel Naroff, president and chief economist of Naroff Economic Advisors.  Top of page




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