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Consumer spending climbs slightly in October

WASHINGTON — Consumers barely increased their spending in October but their incomes rose by the most in seven months. The rise in take-home pay could boost spending during the upcoming holiday shopping season.

The Commerce Department said Wednesday that spending increased 0.1 percent last month, the poorest gain in four months. But incomes increased 0.4 percent, the best showing since March.

Private wages and salaries drove the income gain.

The slight October gain in consumer spending represented a big slowdown from a 0.7 percent September increase. Spending on durable goods such as autos showed a solid increase but spending on nondurable goods such as food and clothing fell.

Some economists predicted spending would slow because consumers spent more over the summer while earning less. Consumer spending is important because it makes up 70 percent of economic activity.

After-tax, inflation-adjusted incomes fell at a 2.1 percent rate over the summer, the biggest drop since the third quarter of 2009, just as the recession was ending.

At the same time, the economy grew at a rate of 2 percent in the July-September quarter because consumers increased their spending at three times the rate of the previous quarter.

Economists predict growth will strengthen to an annual growth rate of 3 percent in the final three months of the year, based on more encouraging data on retail sales and factory output.

The modest third-quarter growth is not nearly enough to lower the unemployment rate, which has been stuck near 9 percent for more than two years.

The rise in earnings may boost spending during the critical holiday shopping season, which is the busiest time of year for most retailers.

But many Americans could take home less next year if Congress doesn’t extend a Social Security tax cut and emergency unemployment benefits. Both expire at the end of this year.

The Social Security tax cut gave most Americans an extra $1,000 to $2,000 this year. If long-term unemployment benefits expire, roughly 6 million families could lose an average of $300 per week. For some, that’s their only source of income.

Both changes would leave Americans with an estimated $165 billion less to spend. The Federal Reserve expects the economy to grow only 2.7 percent next year, and economists say the expiration of the two programs could reduce growth by a full percentage point.