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Monday, 3 December, 2001, 16:39 GMT
US goes cheap car crazy
Traffic in San Francisco
Petrol prices have fallen by more than one-tenth
Cheap car finance is powering US consumer spending to record levels, despite stagnation in wage levels.

The spate of cheap deals in car showrooms offering 0% finance and steep discounts has helped reverse the sharp decline in spending in September triggered by the attacks on New York City and Washington DC.

In contrast to October's 1.7% slide, November showed US consumers increasing their outlay by 2.9% to a seasonally adjusted $7,188bn - the biggest month-by-month jump since 1986.

Durable goods spending, the sector which includes automobiles, leapt 13.8%, while personal services jumped 12%. Non-durable goods, though, rose a much more modest 0.5%.

Factory revival?

The news comes as US manufacturing appears to be recovering from its own post-11 September slide.

Although factory output declined in November, the slide was much more moderate than October's sharp decline.

An index compiled by the National Association of Purchasing Managers (NAPM) hit a level of 39.8 in October, a 10-year low.

Any figure below 50 indicates a contraction.

But in November the figure rose to 44.5, better than economists had feared - if still marking a 16th straight month of decline.

The new orders index also jumped, to 48.8 from 38.3.

NAPM's chairman, Nobert Ore, said the figures were "encouraging", adding that he hoped October had been the low point

But he went on: "It says we still have a ways to go for recovery in the manufacturing sector."

Outlay up, income down

But although manufacturing seems gradually to be recovering and spending has rocketed ahead - driven in part by government tax rebate cheques - incomes have gone in the opposite direction as corporate America retrenches.

Income in October after tax actually fell 1.7%, as jobs disappeared.

The fear is that October will prove a one-off, as the recession - which last week was officially judged to have begun in March of this year - bites harder.

The economy contracted 1.1% in the three months from July to September, far more than most had foreseen.

And the current quarter, which runs to the end of the year, could be even worse - as much as 2% by some predictions.

Another cause for concern is the fact that with spending up and wages down, the ratio of savings to earnings fell to just 0.2%, a record low.

With more job losses a certainty, a fact underlined by the collapse of once-mighty energy group Enron last week, the fear is that Americans' low savings in the credit-fuelled boom of the past decade will eat into spending in the months to come.

Terror's impact

Signs of a slowdown

Rate cuts


Key players

See also:

27 Nov 01 | Business
Worse to come for US economy
16 Nov 01 | Business
America experiences deflation
10 Nov 01 | Business
Spending for Uncle Sam
09 Nov 01 | Business
US producer prices dive
07 Nov 01 | Business
US consumers continue to borrow
07 Nov 01 | Business
US interest rates cut sharply
02 Nov 01 | Business
US unemployment rockets
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