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Consumer spending slowed amid rises in wages and inflation. FILE PHOTO: A customer counts his cash at the register while purchasing an item at a Best Buy store in Flushing, New York March 27, 2010. U.S. consumer spending rose as expected in February for the fifth straight month, while stagnant incomes pushed savings to their lowest level since October 2008, a government report showed on March 29, 2010. Picture taken March 27. REUTERS/Jessica Rinaldi/File Photo/File Photo
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Consumer spending slows down amid historic jumps in wages, inflation


The Commerce Department released a report Friday saying American consumers slowed their spending to a gain of just 0.6% in September. For the July-September quarter as a whole, consumer spending weakened to an annual growth rate of just 1.6%. That was down significantly from the previous quarter. The slowdown comes as a historic rise in wages battles a historic rise in inflation.

“Compensation costs for civilian workers increased 1.3%, seasonally adjusted, for the 3-month period ending in September 2021,” The Labor Department also reported Friday. “Wages and salaries increased 1.5% and benefit costs increased 0.9% from June 2021.”

The 1.5% wage jump is the highest seen in the department’s 20-year history of keeping such records. Lower-paid workers have seen the biggest gains. Pay rose for employees at restaurants, bars and hotels by 8.1% in the third quarter compared to a year ago. For retail workers, that number is 5.9%.

Despite rising wages, Friday’s Commerce Department report also showed personal incomes actually fell 1% in September. That’s the sharpest decline in four months.

Meanwhile, a key inflation barometer that is closely followed by the Federal Reserve surged 4.4% last month from a year earlier. That’s the largest inflation rise since 1991.

Despite inflation’s rise, the concurrent rise in pay has appeared to keep pace in recent months. According to economists, the 1.5% increase in wages and salaries in the third quarter is ahead of the 1.2% increase in inflation during that period.

However, compared with a year ago, it’s a closer call. In the year ending in September, wages and salaries soared 4.2%. While also a record gain, it is just short of that 4.4% rise in inflation.

According to Friday’s Commerce Department report, the category of spending that includes government benefits plunged 7%. This was likely the result of emergency federal programs, including expanded unemployment benefits, expiring.

Economists remain hopeful for a bounce-back in the current quarter. They cite declining COVID-19 cases, rising vaccination rates, more business investment and more Americans venturing out to spend money. Many analysts think the economy will rebound at a solid annual growth rate of at least 4% in the fourth quarter.

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