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Storm dents October spending

Consumer buying drops 0.2% amid damage, disruption

– Americans cut back on spending in October while their income remained flat. The weakness in part reflected disruptions from Superstorm Sandy that could slow economic growth for the rest of the year.

The Commerce Department said Friday that consumer spending dropped 0.2 percent in October. It was the weakest figure since May, and it compared with a 0.8 percent spending increase in September.

Income had risen 0.4 percent in September.

Work interruptions caused by the storm reduced wages and salaries in October by about $18 billion at an annual rate, the government said. The storm affected 24 states, with the most severe damage in New York and New Jersey.

Consumers might also be scaling back on spending because of fears about the “fiscal cliff.” That’s the name for automatic tax increases and spending cuts that will take effect in January if Congress and the Obama administration fail to strike a budget deal by then.

“The upshot is that although both incomes and spending will probably bounce back in November, the underlying trend is weak,” said Paul Dales, senior U.S. economist at Capital Economics.

Dales predicts economic growth will tumble from the 2.7 percent annual rate in the July-September quarter to a weak 1 percent in the October-December period. That’s too low to lower the unemployment rate, now at 7.9 percent.

The saving rate edged up slightly to 3.4 percent of after-tax income in October, compared with 3.3 percent in September.

Many economists say growth will rebound in the New Year after the rebuilding phase begins in the Northeast. And if President Obama and Congress can reach a budget deal to avert to fiscal cliff, some economists, including Federal Reserve Chairman Ben Bernanke, are predicting a strong year for the economy.

At a glance

Spending down: Americans cut their spending 0.2 percent in October. When adjusted for inflation, consumer spending fell by the most in three years. The weakness partly reflected disruptions caused by Superstorm Sandy.
Flat income: Income was flat in October. The government estimated that the storm cut wages and salaries by $18.2 billion at an annual rate.
Outlook: The storm’s effect on spending and income could slow economic growth for the rest of the year. Consumer spending accounts for nearly 70 percent of economic activity.

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