Flooring News and Information

Washington, DC, Nov. 1—Consumers cut back on spending in September by the largest amount in more than 14 years. According to the Commerce Department, spending fell by 1.8% in September, following a slight 0.3% gain in August.

Consumer spending, which accounts for two thirds of all economic activity, had been a main force keeping the economy afloat over the past year. But economic fallout from the September 11 attacks, including increased layoffs, falling consumer confidence and billions of dollars in lost business, has likely pushed the country into recession.

The 1.8% drop was the largest decline since a decrease of the same amount in January 1987. The last time it was higher was in May 1960, when consumers cut spending by 1.9%.

Americans' personal income, which includes wages, interest and government benefits, was flat in September, reflecting the weakened state of the nation's labor market and the toll of the terror attacks. It was the worst showing since January 1994. In August, incomes rose by only 0.1%.

Spending on durables—costly manufactured goods expected to last at least three years, such as cars and washing machines—fell 3.2% in September, the biggest drop since January 1999. In August, spending on durable goods dipped by 0.3%.

Spending on nondurables, such as clothes and food, declined 1.3%, the largest drop since March 1993, after rising 0.3% the previous month. Spending on services dropped 1.8%, the biggest decline since the government began record keeping in 1959. In August, spending on services rose 0.5%.

In another report, the Labor Department said new claims for unemployment benefits edged down last week by 10,000 to 499,000 but was still at a level that suggests an extremely weak labor market.

The economic picture is likely to get worse before it gets better, economists say. Many economists predict the nation's unemployment rate jumped to 5.1% in October from 4.9% in September and that companies eliminated more than 280,000 jobs during the month. Economists fear consumers will spend a lot less if the employment situation seriously deteriorates.

The pullback in spending in September lifted the nation's personal savings rate—which is savings as a percentage of after tax income—to 4.7% from 4.1% in August. It was the biggest increase the savings rate has seen since August 1998 when it rose by 4.9%.