Personal Spending Falls Even as GDP Rises

Personal incomes and spending fell in September, even as a rise in the gross domestic product has economists declaring that the recession has ended.

New figures released by the Commerce Department today showed that personal spending fell by half a percent in September, following four consecutive monthly increases. The drop is largely attributed to the end of the government's "Cash for Clunkers" automotive sales incentive program, which helped boost personal spending 1.4 percent in August.

Personal income has been largely stagnant the past three months, declining by $100 million in September, or a less than 0.1 percent drop. That follows increases of only 0.1 percent in each of the previous two months.

The report on personal incomes and outlays comes one day after the Commerce Department reported that the economy grew by 3.5 percent in the third quarter of the year after four quarters of consecutive declines, marking the end of the longest recession in U.S. history. The two next-longest recessions lasted nine months each.

Consumers appear to be reacting to the economic downturn by cutting back on spending and saving significantly more. Personal savings as a percentage of disposable income rose to 3.3 percent in September, according to the Commerce Department report, up from 2.8 percent in August.

Despite the increase in gross domestic product, most economists do not expect employment to begin to recover for at least another year or more, until increasing demand creates a need for employers to hire more workers. Perhaps reflecting that reality, consumer sentiment fell in October, according to the Reuters/University of Michigan survey, falling to 70.6 from 73.5 in September.

For the 13th consecutive month, a majority of consumers in the Reuters/U-M survey reported that their financial situation had worsened in October, the longest such stretch in the 60-year history of the survey.

The survey, which is a gage of consumer's economic expectations, shows that the economy still has a long way to go to recovery even though economic output is increasing. Even so, the outlook is considerably improved over last November, when the consumer sentiment index fell to 55.3, its lowest reading since the 1980 recession.