US CONSUMER spending fell in September for the first time in five months as the boost from a government car-buying incentive faded, adding to fears that consumers may be pulling back as they head into the last quarter of the year.

The Commerce Department said spending fell 0.5 per cent, the largest decline since December, after an upwardly revised 1.4 percent increase in August. Consumer spending in August was previously reported to have advanced 1.3 per cent.

September’s decline was in line with market expectations.

Consumer spending, which normally accounts for over two-thirds of US economic activity, in August was bolstered by the popular “cash for clunkers” programme that gave discounts on some new motor vehicle purchases.

The programme, which ended in August, contributed to a jump in consumer spending in the third quarter and helped to pull the economy out of its worst recession since the 1930s.

Spending adjusted for inflation fell 0.6 per cent in September, also the largest decline since December, after rising 1 per cent the prior month, the US commerce department said.

Personal income was flat last month after rising 0.1 per cent in August. That was also in line with market expectations.

Real disposable income fell 0.1 per cent in September. Despite the fall in income, Americans saved more money last month.

Savings increased to an annual rate of $355.6 billion (€241.6 billion), lifting the saving rate to 3.3 per cent from 2.8 per cent in August.

Commerce department data also showed the personal consumption expenditures price index excluding food and energy, a key inflation gauge monitored by the US Federal Reserve, was up 1.3 per cent from a year ago in September, matching the August increase.

Federal Reserve policymakers, who have cut interest rates to almost zero to aid growth, have said that they expect to keep rates exceptionally low for an extended period.

A separate report from the labour department showed employment costs in the US rose 0.4 per cent in the third quarter, matching the previous period’s increase and indicating marginal gains in income.

“It sets up a very weak fourth quarter for consumption. It might be around flat to up 1 per cent annualised in the fourth quarter,” said Ian Morris, chief economist at HSBC Securities in New York.

“But if inventories add and you get some rise in business investment, you could get a much more decent fourth-quarter [GDP gain] of around 3 per cent,” he said.

Government data on Thursday showed the economy grew at a 3.5 per cent annual rate in the third quarter, probably ending a recession that began in December 2007. – (Reuters)