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U.S. consumer spending rises, but saving slows

A new car lot in Silver Spring, Maryland, August 1, 2012.

GARY CAMERON/REUTERS

U.S. consumer spending rose solidly in September as households stepped up purchases on automobiles and a range of other goods, but the increase came at the expense of savings.

The Commerce Department said on Monday consumer spending rose 0.8 per cent, the largest increase since February, after an unrevised 0.5 per cent gain in August.

Economists polled by Reuters had expected spending, which accounts for about 70 per cent of U.S. economic activity to increase 0.6 per cent in September.

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When adjusted for inflation, consumer spending increased 0.4 per cent after edging up 0.1 per cent the prior month.

Financial markets showed little reaction to the data. U.S. stock markets will be closed on Monday, and possibly on Tuesday, as a mammoth storm threatens the U.S. East Coast.

The figures were incorporated in last Friday's third-quarter gross domestic product report. Consumer spending increased at a 2-per-cent annual pace in the third quarter after rising at a 1.5-per-cent pace the prior period.

That helped to lift economic growth at a 2-per-cent rate during the quarter, an acceleration from the April-June period's 1.3-per-cent pace.

The spurt in spending as the quarter ended, which was concentrated in long-lasting goods such as autos and Apple Inc's iPhone 5, suggests some of the momentum could carry through the remainder of the year. However, challenges remain.

While overall income last month grew 0.4 per cent, the most since March and a step-up from August's 0.1 per cent, the amount of money at the disposal of households after accounting for inflation and taxes was flat.

That meant households cut back on saving to fund purchases. This and sluggish job growth could hamper spending over the long-term. The saving rate slipped to 3.3 per cent last month, the lowest since November 2011, from 3.7 per cent the prior month.

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"Households were only able to boost consumption in the third quarter by dipping into their savings," said Paul Dales, senior U.S. economist at Capital Economics. "Faced with the prospect of major tax hikes in the New Year, however, they will soon become more cautious."

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