Solid gain masks weak spot of stagnant incomes

Americans' spending, the biggest part of the economy, jumped in September by the most since 2009. A look at how it came about tells a less rosy story.

After-tax incomes adjusted for inflation were stagnant after falling 0.1 percent the previous month, Commerce Department figures showed Monday. Over the past four months, real disposable income was little changed.

Wages advanced moderately, but a sustained pickup remains elusive in the current expansion that began in mid-2009 - despite robust hiring and an unemployment rate at a 16-year low.

What's more, the saving rate slumped to the lowest since December 2007, the month the last recession began, as households tapped their bank accounts to spend. That, along with a pickup in borrowing, makes it less likely that the economy will benefit from a sustained acceleration in consumer spending, some economists said.

'The continued drawdown in the saving rate will likely limit how much further consumption can accelerate,” Blerina Uruci, an economist at Barclays, wrote in a note after the report. Barclays still expects spending to be 'solid” in the fourth quarter, consistent with strong employment, personal income and consumer confidence data.

The 1 percent jump last month in nominal purchases probably overstated the true strength of household spending. The last time outlays rose as much was in mid-2009 when auto purchases were fueled by a federal government incentive program called 'cash-for-clunkers,” only to slump the following month.

The latest report showed inflation-adjusted purchases of motor vehicle purchases climbed 9.9 percent in September from the previous month, fueling a 3.5 percent gain in durable-goods purchases as people replaced vehicles damaged by the hurricanes.

In any case, economists expect household consumption to settle into a more sustainable, though decent pace.