The Commerce Department has reported that consumer spending for the month of October was down 0.2 percent.  Income growth also fell 0.2 percent compared to last year.  The decrease is being partially attributed to the disruption caused by superstorm Sandy, but economists maintain that even if the storm had not occurred, we would still be seeing signs of economic slowdown.  “What this is showing,” says Nationwide Insurance chief economist David Berson, “is the economy, broadly, is slowing in the fourth quarter and it is concern on the part of businesses and consumers with respect to the fiscal cliff.”

The data for October indicates the largest drop in spending since 2009, and follows a 0.8 percent increase in September.  Economists are cutting fourth-quarter GDP growth estimates in response, generally settling on a rate between 0.8 and 1.8 percent growth.  Sam Bullard, senior economist at Wells Fargo Securities, says “It’s going to be challenging for real spending to grow above the third-quarter’s pace [which was 2.7 percent].  The fundamental drivers of spending are still sluggish.”

As the East coast repairs the damage dealt by Sandy, and more people return to work, consumer spending is expected to bounce back in December.  However, public concern about stalled budget discussions in Washington and the impending “fiscal cliff” may continue to stunt economic growth.  “If the discussions in Washington linger as they appear they are, then the pick-up in December would be less than it otherwise would be because you still have this level of uncertainty weighing on consumers,” says David Berson.

Although consumer spending was not on the rise in October, borrowing by small businesses was.  The Thomson Reuters/PayNet Small Business Lending Index, which indicates financing to small businesses in the U.S., increased from 96.4 in September to 107.5 in October.  Borrowing increased by 11 percent compared to October of last year.

PayNet’s data, accumulated from over 250 leading U.S. lenders, also shows reductions in both short-term and long-term delinquency.  PayNet founder Bill Phelan attributes the recent rise in borrowing to growing optimism among smaller companies.  “They are seeing some profit-producing opportunities, and are wading in.  The odds have shifted toward some optimism for next year,” says Phelan.


Mutikani, Lucia. “Consumer Spending, Income Stall; Sandy a Factor” Reuters, 11/30/12.

Saphir, Ann. “Small-business Borrowing Surges in October” Reuters, 12/3/12.

(Visited 45 times, 1 visits today)