- The Washington Times - Friday, November 2, 2001


Consumers jolted by the terror attacks and rising layoffs cut back on spending in September by the largest amount in more than 14 years. Manufacturing activity plummeted.

The Commerce Department reported yesterday that spending plunged by 1.8 percent in September, following a modest 0.3 percent gain in August.

Consumer spending accounts for two-thirds of all economic activity and had been a main force keeping the economy afloat for more than a year. But economic fallout from the September 11 attacks, including rocketing layoffs, plunging consumer confidence and billions of dollars in lost business, has likely pushed the country into recession.

Another report suggested that the manufacturing sector, the weakest part of the overall economy, sank deeper into recession in October.

The National Association of Purchasing Management reported that manufacturing activity index plunged to 39.8 last month from 47 in September, the 15th consecutive month of decline. An index above 50 signifies growth in manufacturing, while a figure below 50 shows contraction.

Manufacturers have been bearing the brunt of the economic slump. To cope with sagging demand by businesses and consumers, factories have sharply cut production and eliminated 1.1 million workers in the last 14 months.

The 1.8 percent drop in consumer spending was the largest decline since a decrease of the same amount in January 1987. The last time it was higher was in May 1960, when consumers cut spending by 1.9 percent.

Americans' personal income, which includes wages, interest and government benefits, was flat in September, reflecting the weakened state of the nation's labor market and the toll of the terror attacks. It was the worst showing since January 1994. In August, incomes rose by a tiny 0.1 percent.

Separately, builders trimmed spending on construction projects around the country by 0.4 percent in September led by a drop in spending on residential projects.

In the wake of the attacks, builders say they are paying extra close attention to demand. Home builders say they may start offering incentives to attract prospective buyers.

In the personal income and spending report, spending on durables costly manufactured goods expected to last at least three years, such as cars and washing machines fell by a sharp 3.2 percent in September, the biggest drop since January 1999. In August, spending on durable goods dipped by 0.3 percent.

Spending on nondurables, such as clothes and foods, declined by 1.3 percent, the largest drop since March 1993, after rising by 0.3 percent. Spending on services dropped by 1.8 percent, the biggest decline since the government began keeping records in 1959. In August, spending on services rose 0.5 percent.

In another report, the Labor Department said new claims for unemployment benefits edged down last week by 10,000 to 499,000 but was still at a level that suggests an extremely weak labor market.

The economic picture is likely to get worse before it gets better, economists say.

Many economists predict the nation's unemployment rate jumped to 5.1 percent in October from 4.9 percent in September and that companies eliminated more than 280,000 jobs during the month. The government will release the employment report for October today.

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