It looks like US consumers kept their hands in their pockets a little more than the speculators expected.
Battered consumers, faced with weak income growth and rising inflation, trimmed their spending in August by the largest amount in nearly a year.
The good news is that the full effect of falling fuel prices has not been seen yet.
Here's what some of the numbers show.
The Commerce Department reported Friday that consumer spending, after adjusting for inflation, dropped by 0.1 percent last month, the first decline since a 0.3 percent fall in September 2005, a month when business activity was disrupted by Hurricane Katrina.
If you look inside the numbers, there may be a reasonable explanation.
After removing inflation, the 0.1 percent decline in spending followed a 0.5 percent rise in July. Much of the slowdown reflected a drop in auto sales in August following a strong July.
That could reflect consumers shift from big ticket items - like vehicles - to smaller items like back-to-school supplies.
The new report underscored how much the economy is slowing this year as consumers have been battered by record-high gasoline prices and a cooling housing market. Falling home prices are making Americans more cautious about spending money because they feel less wealthy.
But according to this article, consumers are not that cautious.
Americans’ savings rate came in at a minus 0.5 percent, compared to a minus 0.7 percent in July. That marked the 17th consecutive month that the savings rate has been in negative territory. That means that Americans are spending all of their after-tax incomes and dipping into savings or borrowing to finance their purchases.
To me, that's the most disconcerting element of this report. Living past their means, and continuing to build a debt-based house of cards does not bode well for the future.
Consumer spending is closely watched because it accounts for two-thirds of total economic activity.
So what's better: Debt-based consumer spending, or greater savings and less debt? I'm thinking that even though consumer spending numbers would drop, the economy would be better off because consumers would be better off.
Overall prices, by a gauge of inflation tied to the consumer spending numbers, rose by 0.2 percent in August, after excluding energy and food. The 2.5 percent rise in this core measure over the past 12 months was the biggest increase since a similar 2.5 percent 12-month rise in April 1995.
I guess we'll have to see what September's numbers look like to see if these numbers continue their trend. Consumer confidence has been bolstered by the drop in fuel prices, and that may bode well for the holiday shopping season. Retailers are hoping that's so.
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