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U.S. personal spending drops
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November 1, 2001: 11:33 a.m. ET
Spending drop is biggest in 14 years as jobless claims fall.
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NEW YORK (CNNmoney) - U.S. consumer spending fell at the fastest rate in more than 14 years in September, the government said Thursday, as the effects of the terrorist attacks cracked a pillar of strength in the world's largest economy.
Though the huge drop likely reflects the nearly complete shutdown of the U.S. economy in the days following the attacks, and spending has since improved somewhat, consumer confidence remains fragile. With companies continuing to cut hundreds of thousands of jobs, spending is unlikely to be robust any time soon and most economists think a recession is inevitable.
"Slowing income gains and increased uncertainty have savaged consumer spending," said Steven Wood, economist with FinancialOxygen. "This has removed the only major support for the economy, insuring the recession will last, at least, into early next year."
The Commerce Department reported that personal spending fell 1.8 percent in September to a $7.0 trillion annual rate after rising a revised 0.3 percent in August. It was the biggest drop since January 1987, when spending also fell 1.8 percent. Economists surveyed by Briefing.com expected spending to fall 1.0 percent.
Personal income, meanwhile, was unchanged in September at an $8.8 trillion annual rate after also being unchanged in August. Analysts surveyed by Briefing.com expected it to rise by 0.1 percent.
Separately, the Labor Department reported that new jobless claims fell to 499,000 last week from a revised 509,000 a week earlier as companies, faced with slowing demand and slumping profits, kept cutting jobs. Economists surveyed by Briefing.com expected 508,000 new claims.
Consumer spending fuels two-thirds of the U.S. economy and has helped keep a recession at bay during a prolonged slowdown in business spending. But the economy shrank in the third quarter, the government reported Wednesday, meaning the United States is closer to recession.
In addition, the attacks basically shut down the economy for days and shook consumer confidence. Yet consumer spending rebounded a bit in the weeks after the attack, so the lasting effect remains to be seen.
"We've got to see what happens in October," David Wyss, chief economist at Standard & Poor's, told CNNfn's Before Hours program. "There was an initial shock after the attack. Nobody was doing anything."
Though the Federal Reserve has cut its target for short-term interest rates nine times this year - twice after the attacks - and is expected to cut them again on Nov. 6, most economists expect a recession, commonly defined as two straight quarters of contraction, this year.
Meanwhile, job cuts have been piling up, and employers aren't yet hiring new workers. The Labor Department said its four-week moving average of new unemployment claims, which smoothes out the fluctuations in the weekly data, fell to 497,250 last week from a revised 506,250 the prior week.
Continued claims, which is the number of workers who have been claiming benefits for at least a week, rose to 3.69 million in the week of Oct. 20, the last for which data are available, from 3.64 million the prior week.
The numbers come a day before the government's October report on unemployment and payrolls. Economists surveyed by Briefing.com expect unemployment rose to 5.2 percent from 4.9 percent in September and that employers cut 300,000 jobs versus 199,000 in September.
Stock futures edged higher after the news, pointing to a mixed-to-slightly higher start for Wall Street. 
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