Americans' income fell unexpectedly and spending declined more than forecast in August, the US government reported on Friday, as the economy registered the first major effects of Hurricane Katrina and as once-strong auto sales waned.
A separate report from the University of Michigan showed that consumer confidence fell to its lowest level in almost 13 years this month, indicating that the impact of Hurricanes Katrina and Rita was taking a severe toll on Americans' perceptions about the economy.
"The higher level of energy prices is certainly affecting the psychology of consumers," said Lynn Reaser, chief economist for Bank of America's investment strategies group.
"But the underlying strength of the economy, and the continued increase in the relative strength of the underlying job market should prevent consumer spending from collapsing," she said.
Personal incomes fell by 0.1 percent last month, to an annual rate of US$10.29 trillion, according to the Commerce Department. The drop partly reflects the impact of an estimated US$100 billion in uninsured losses to residential and business property from Katrina, which pounded the Gulf Coast at the end of August. Incomes rose by 0.3 percent in July and last showed a decline in January, when they fell 2.6 percent. Analysts had expected incomes to rise by 0.3 percent.
Wages and salaries, which make up slightly more than half of all personal income, were up 0.1 percent, or US$9.1 billion.
Spending slipped 0.5 percent, to US$9.13 trillion, its biggest monthly drop in more than three years and after it rose by 1.2 percent in July. Economists had expected spending to fall by 0.2 percent. When adjusted for inflation, real spending fell by 1 percent.
Both the increase in July spending and the dropoff in August were influenced by car and truck sales. Detroit's Big Three automakers slashed prices in June and July to clear their lots of 2005 model-year cars, but the discounts appear to have lost much of their sizzle in August. Economists are concerned that rising energy prices may further restrain consumer spending later this year. Retail gasoline prices topped US$3 a gallon last month, and heating bills are expected to rise significantly this winter because the hurricanes disrupted oil and gas supplies.
"The real challenge on the energy front hasn't hit yet because it's not winter," said Michael Moran, chief US economist at Daiwa Securities Americas.
Consumers already appear worried. The Michigan consumer sentiment index fell to 76.9 this month, from 89.1 in August, reaching its lowest level since October 1992. In July, the index was at 96.50.
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