Consumer-Spending Drops Big, 1st GDP Quarterly Decline since ’91

November 3, 2008

This article is included in these additional categories:

Financial Services | Retail & E-Commerce

US consumers, hesitant to buy big-ticket items, cut spending in September – and that resulted in the biggest consumer-spending monthly drop in more than four years, the Commerce Department reported Friday (via MarketWatch), reports Retailer Daily.

The gross domestic product in the third quarter shrank at an annual rate of 0.3%, the Commerce Department’s Bureau of Economic Analysis also reported (via AP/Forbes).

Consumer spending, which constitutes some two-thirds of total economic activity, was falling at an annual rate of 3.1% in Q3 the GDP report found – the first quarterly decline since 1991, as well as the largest quarterly decline in 28 years, the AP writes.

Highlights of Sept. personal income and outlays:

  • Real consumer spending (personal consumption expenditures) fell 0.4% in September after remaining flat in August. Spending on autos, gas and oil were down.
  • Personal income rose 0.2% in September, after rising 0.4% in August. Wages and salaries, the largest component of personal income, rose 0.1% after rising 0.4%. The Economic Stimulus Act of 2008 had a negligible effect on personal income in both months, the Commerce Dept. said.
  • Personal consumption expenditures (PCE) prices rose 0.1% in September after remaining flat in August. Excluding food and energy, the index rose 0.2% in September and in August.
  • Real disposable personal income (DPI), income adjusted for inflation and taxes, rose 0.1% in September after falling 1.0% in August. Real DPI was affected by tax rebates and subsidies from the Stimulus Act. Excluding those items, real DPI increased 0.2% in September and 0.4% in August.
  • Personal saving as a percentage age of disposable income was 1.3% in September.

Highlights of Q3 GDP report*:

Real gross domestic product (GDP) decreased 0.3% in the third quarter of 2008 after increasing 2.8% in the second quarter of 2008.

Real GDP declined in Q3 mainly because of weak consumer spending, which fell 3.1% after modest growth over the previous three quarters. Spending on food, clothing, and shoes turned down.


  • Net exports continued to contribute to growth but at a reduced rate.
  • Business investment turned down.
  • Housing continued to act as a drag on growth.

In contrast, inventories and federal government spending added more to growth this quarter than last.


Prices of goods and services purchased by US residents rose 4.8% after rising 4.2% in the second quarter. Food prices picked up, while energy prices decelerated.

Excluding food and energy, prices rose 3.1% after rising 2.2% in Q2.

Personal Income

Real disposable personal income (DPI) – income adjusted for inflation and taxes – decreased 8.7%, in contrast to an 11.9% increase in the second quarter. In the second quarter, it was boosted by the tax rebates from the Economic Stimulus Act of 2008.

Excluding those payments, real DPI rose 0.3% in Q3 after decreasing 0.4% in Q2.

* The Commerce Department’s Bureau of Economic Analysis emphasized that these are third-quarter “advance” estimates and are therefore based on source data that are incomplete or subject to further revision by the source agency.

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