Consumer spending in the U.S. climbed more than forecast in September as incomes grew, a sign the biggest part of the economy was picking up as the quarter drew to a close.
Household purchases, which account for about 70% of the economy, rose 0.8%, the most since February, after a 0.5% gain the prior month, a Commerce Department report showed today in Washington. The median estimate in a Bloomberg News survey of 71 economists called for a 0.6% rise. Incomes rose 0.4%, the most since March.
The economy expanded at a 2% annual pace in the third quarter, helped by a pickup in household purchases as an improving housing market boosted confidence. At the same time, growth remains limited and unemployment elevated, Federal Reserve policy makers said last week, one reason they maintained their plan to buy bonds and keep interest rates low.
"The strength in September gives consumer spending a good lift for the fourth quarter," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Conn. "The housing market seems to have turned. Consumers are clearly feeling better and are going out and spending a bit more."
Equity markets in the U.S. were closed today as Hurricane Sandy barreled toward New York City. Risks posed by the storm, expected to come ashore late today in southern New Jersey and potentially affect 60 million people, were deemed too great to require workers to travel.
Projections for spending in the Bloomberg survey ranged from gains of 0.3% to 0.8%. The saving rate dropped to 3.3%, the lowest since November, from 3.7%. Wages and salaries increased 0.3% after rising 0.1% in August.
The drop in the saving rate indicates the gain in spending "is not fully sustainable," said Pierpont's Mr. Stanley. "We'll see whether the consumer can keep it up." Mr. Stanley raised his forecast for spending in the fourth quarter after the report to about 2.5% from around the 2% he previously estimated. Disposable income, or the money left over after taxes, was little changed in September after falling 0.3% after adjusting for inflation.
Cheaper gasoline, a lower unemployment rate and an improving housing market are lifting Americans' moods. The Bloomberg Consumer Comfort Index reached a six-month high in the week ended Oct. 21. The Thomson Reuters/University of Michigan final gauge of sentiment advanced to the highest level since September 2007, before the recession began.
Retail sales in September and August had the best back-to-back showing since late 2010 as shoppers snapped up goods from cars to Apple Inc.'s iPhones. Target Corp., the second-biggest U.S. discounter, was among chains whose same-store sales last month topped analysts' estimates.
But some companies are seeing more caution among customers. Chipotle Mexican Grill, the Denver-based burrito chain, reported third-quarter profit that trailed analysts' estimates on slowing sales growth. "We still don't think the economy is in great shape," Montgomery Moran, co-chief executive officer, said on an Oct. 18 conference call with analysts. "Consumers seem to be a little bit cautious right now."
Employment and growth are central themes in the campaigns of Barack Obama and Mitt Romney ahead of the Nov. 6 elections.