Sandy Rains on October Income, Spending

Consumer spending fell $20.2 billion in October as personal income remained relatively flat, the ""Bureau of Economic Analysis"":http://bea.gov/newsreleases/national/pi/2012/pdf/pi1012.pdf (BEA) reported Friday. The report was weaker than the 0.3 percent growth in income and 0.1 percent growth in spending economists had expected.

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While the report reflects a weak beginning to the fourth quarter, the disappointing growth largely comes from work interruptions brought by superstorm Sandy, which impacted 24 states, by BEA├â┬ó├óÔÇÜ┬¼├óÔÇ×┬ós estimation. BEA also suggested the income report may be revised since some data had to be estimated.

""BEA cannot quantify the total impact of the storm on personal income and outlays because most of the source data used to estimate these components reflect the effects of the storm and cannot be separately identified,"" the agency said in its report. ""However, BEA did make adjustments where source data were not yet available or did not reflect the effects of Sandy. The largest of these adjustments was for work interruptions, which reduced [COLUMN_BREAK]

wages and salaries by about $18 billion (at an annual rate).""

The October report marked the first time since June in which income growth--however modest--exceeded spending.

Still, income growth was the weakest it has been since last November, when it fell $31.1 billion in one month--a decline that was completely reversed one month later.

The storm affected spending as well. Personal spending was down $20.2 billion after growing $84.0 billion one month earlier.

Personal savings improved, increasing $18.8 billion in the month to $410.1 billion, or 3.4 percent of disposable (after tax) income, up from 3.3 percent in September.

Beyond the drop in wages, government transfer payments fell a net $6.7 billion, led by Social Security payments, which dropped $10.3 billion. Unemployment insurance payments fell $1.8 billion in October, the 12th straight monthly decline.

Consumer spending on durable goods--often a sign of confidence since they are big-ticket items paid for through borrowed funds--fell $23.2 billion, while spending on non-durable goods dropped $4.9 billion. Spending on services increased $7.9 billion.

Personal interest payments (excluding mortgage interest) increased $2 billion.

Inflation, as measured by personal consumption expenditures (considered the Federal Reserve's favored gauge) was 1.7 percent, up from 1.6 percent in September. Core inflation was 1.6 percent, unchanged from September.