Consumer spending dropped unexpectedly in October according to the latest numbers from the Commerce Department. Economists say lost wages due to the storm likely affected spending for the month and could continue to affect it into the holiday season.
Consumer spending for the holiday season could be affected by Hurricane Sandy. The effects of the storm are clear in this week’s latest spending numbers for October. Spending in the U.S. declined unexpectedly, and many economists believe it was because many people in the Northeast couldn’t go to work or visit retailers to make purchases toward the end of the month. Economists predict that the loss in wages will slow holiday sales a bit.
Spending was down 0.2 percent, which was the worst reading since May. Spending actually increased by 0.8 percent in September. Bloomberg surveyed 79 economists, and the consensus was that there would be no change in nominal sales, so the numbers released by the Department of Commerce this week were a bit of a surprise. The agency also found that incomes for the month of October were unchanged, most likely because Hurricane Sandy caused a drop in wages.
Hundreds of retailers had to close their doors when the super storm hit Oct. 29, causing a break in the momentum the economy was gaining as consumer sentiment began to rise. Economists originally expected good holiday sales, although they now say that sales will be a little weaker than they thought.
The economy as a whole slowed during the third quarter, so right now the Federal Reserve is attempting to combat that by pushing policies that would spur employment and increased wages. Also lower gas prices and potential growth in the housing market could create additional bright spots in the economy.
At this point, the Department of Commerce has not been able to fully quantify the effect of Hurricane Sandy, although the agency did say that it affected 24 states. But it does know that private wages dropped $17.1 billion in the month of October, and it estimates that annual pay was reduced by approximately $18.2 billion because of work schedules that were interrupted by the storm.