US consumer spending falls

Drop in household spending prompts fears of slow recovery from recession.

    Consumer spending in the US has dipped for the
    first time in months [GALLO/GETTY]

    That scheme granted consumers a tax credit of up to $4,500 towards the price of a new vehicle by trading-in one that was less fuel efficient.

    Analysts warn that any recovery in consumer spending is likely to be subdued due in part to rising unemployment, which the US administration has already said will probably tip over 10 per cent of the working population before it begins to fall.

    GDP rise

    The report that US consumer spending has declined came a day after official figures showed that US economic output grew by 3.5 per cent in the third quarter of 2009.

    "The takeaway is that stimulus efforts helped turn the economy around in the third quarter. Once the cosmetics are taken away, though, will things look as pretty?"

    Patrick O'Hare, analyst

    The rise in GDP (gross domestic product) in the third-quarter pulled the US of its worst recession in decades, which was sparked when thousands of Americans defaulted on their mortgages and credit card debts.

    The administration of Barack Obama, the US president, said on Thursday that the rise in economic output was a sign that a $787bn economic stimulus package, which sank billions of taxpayers' dollars into ailing banks, financial institutions and carmakers, was working.

    But economic analysts have warned that the pace of US economic recovery is likely to be slow, given that the country has to emerge from its deepest economic crisis since the Great Depression of the 1920s and 1930s.

    "The takeaway is that stimulus efforts helped turn the economy around in the third quarter. Once the cosmetics are taken away, though, will things look as pretty? Probably not," Patrick O'Hare, an analyst at, said.

    'Slow recovery'

    High Frequency Economics, an economics research firm, forecast that GDP would expand by only one per cent in the fourth quarter and between one and two per cent through 2010.

    "Even that modest performance assumes there will be another federal fiscal stimulus package next spring, if only to offset the inevitable further tightening in the state and local level," Ian Shepherdson, its chief US economist, said.

    But Dean Maki, an analyst at Barclays Capital said that he expects growth to accelerate.

    "We disagree with the consensus view, and look for growth to accelerate to four per cent in fourth quarter 2009 and five per cent in first quarter 2010," he said.

    SOURCE: Agencies


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