Consumer spending in U.S. declines as Sandy reduces wages

Spending by U.S. consumers unexpectedly declined and incomes stagnated in October as superstorm Sandy kept those in the Northeast from getting to work or from shopping at malls and car dealerships.

Purchases decreased 0.2 percent, the weakest reading since May, after a 0.8 percent gain in the prior month, Commerce Department figures showed today in Washington. The median estimate of 79 economists surveyed by Bloomberg called for no change in so-called nominal sales. Incomes were unchanged, held down by a drop in wages caused by Sandy, Commerce said.

The storm shuttered hundreds of retailers when it made landfall on Oct. 29, temporarily countering the benefit from rising consumer sentiment that has brightened the holiday- shopping outlook. Faster job and wage gains would help stoke household spending after a third-quarter slowdown, helping explain why the Federal Reserve is pursuing policy aimed at spurring employment.

“You have people who couldn’t get to stores, stores that were closed in a fairly heavily populated area for at least a few days in October,” Gus Faucher, a senior economist at PNC Financial Services Group Inc. in Pittsburgh, said before the report. “Sales would probably be flat or slightly up without Sandy. Overall, consumers are increasing spending at a moderate pace, roughly in line with income growth.”

While the Commerce Department said that the storm affected 24 states, it couldn’t quantify Sandy’s total effect on spending and income. The storm reduced wages and salaries at an annual rate of $18.2 billion as it interrupted work schedules.

Economists’ Estimates

Economists’ spending projections ranged from a drop of 0.2 percent to a gain of 0.5 percent.

Incomes increased 0.4 percent in September. Economists projected that they would increase 0.2 percent in October, according to the median estimate.

Wages and salaries fell 0.2 percent in October after a 0.3 percent gain a month earlier, today’s report showed. The saving rate rose to 3.4 percent from 3.3 percent.

The spending figure used to calculate gross domestic product, which has had the effects of inflation removed, showed purchases declined 0.3 percent in October, the most since September 2009.

Inflation-adjusted spending on durable goods, including automobiles, decreased 1.7 percent in October after a 2.2 percent gain. Outlays for non-durable goods, which include gasoline, fell 0.3 percent last month.