Page last updated at 14:49 GMT, Friday, 31 October 2008

Recession fears grip US consumers

A US shopper
US consumers are increasingly reluctant to spend money

Consumer spending in the US fell in September by the biggest amount in four years, the Commerce Department said.

Personal spending fell by 0.3% last month, despite a rise in incomes of 0.2%, official figures showed.

The drop in expenditure was the biggest since June 2004, and steeper than economists had predicted.

On Thursday, the Commerce Department issued figures showing the US economy shrank at an annualised rate of 0.3% between July and September.

Consumer spending accounts for two-thirds of total US economic activity.

A number of US retailers have reported falls in sales for September, including department store JC Penny, upmarket rival Saks, high street retailer American Eagle Outfitters and online retailer Target Corp.

Low cost retailers Wal-Mart and Costco also failed to meet Wall Street expectations of sales for the month.

A drop in spending had been expected, although not as steep as 0.3%.

Benign inflation

The spending report also showed that consumer inflation edged up 0.1% in September, or 0.2% excluding energy and food costs.

In a separate report, also released on Friday, the US Labour Department said wages and benefits of US workers rose 0.7% in the third quarter, the same increase recorded in the previous two quarters.

Concerns over inflation have abated somewhat prompting the Federal Reserve to seek ways to boost the economy, such as by lowering interest rates to increase borrowing.

On Wednesday, the US Federal Reserve cut its key interest rate from 1.5% to 1%, as widely expected. The relative lack of inflationary pressure in the US economy means the Fed will be able to make further cuts should it wish.

Shaky confidence

Earlier in the week, Conference Board figures showed US consumer confidence at a record low in October, amid falling global stock markets, rising property foreclosures and increasing job losses.

The board said the monthly consumer confidence index fell to 38, down from a revised 61.4 in September and below analysts' expectations of 52.

It was the lowest since the board began tracking consumer sentiment in 1967.

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