New Data Show Continuing Decline in U.S. Spending

Household spending and investment in big-ticket items plummeted in October in the United States, as major world economies announced new plans to try to boost demand to fight a deepening economic downturn.

New U.S. data showed a continuing decline in both consumer and business spending -- the dynamic that prompted the Federal Reserve and Treasury to announce on Tuesday an $800 billion plan to lower home loan mortgage rates and ensure households and small businesses have access to adequate credit. The European Commission today proposed its own $260 billion plan to rekindle growth, while China slashed a benchmark interest rate by the most since the Asian financial crisis in the 1990s.

In the United States, the Commerce Department said that orders for durable goods fell a quicker-than-expected 6.2 percent in October. Excluding volatile aircraft and defense purchases, capital investment by business was down 4 percent compared with the month before. Over the past three months, capital investment has fallen at a nearly 33 percent annualized rate, according to an analysis by the High Frequency Economics consulting firm -- a figure the company's chief U.S. economist, Ian Shepherdson, termed "terrifying."

Personal spending, meanwhile, dropped 1 percent in October compared with the month before -- the steepest one month decline since the Sept. 2001 terrorist attacks. A drop in the rate of inflation, helped by falling energy prices, put more money in people's pockets: Real disposable personal income, the amount of earnings left after taxes and adjusted for inflation, increased by 1 percent in October.

But the extra money went into savings as households continued to retrench. Consumer spending accounts for about two-thirds of U.S. economic activity, and flagging demand could deepen the downturn that is already underway.

With credit markets still tight, financial companies ailing and the housing market in collapse, world governments have increasingly turned attention to the impact rising joblessness, stagnant incomes and falling consumer demand are having on the global economy. The loss of trillions of dollars in wealth and income over the past year -- from falling stock markets, declining homes prices and lost jobs -- has prompted households and businesses to pull back on spending, a fact felt in both the developed world and export-dependent developing nations such as China.

In Brussels today, European Commission President José Manuel Barroso announced a plan to commit the equivalent of 1.5 percent of Europe's combined economic output to a broad set of programs designed to stimulate demand, create jobs, rebuild infrastructure and spur innovation.

The 200 billion Euro program -- about $260 billion at today's exchange rate -- would be funded partly by individual nations and partly through central institutions such as the European Investment Bank.

While the commission -- the executive branch of the European Union -- cannot compel states to join the effort, Barroso said in a news conference he expected broad agreement on the idea that Europe must soon commit to a large public investment in economic growth.

Some nations, notably Germany, have proposed their own stimulus programs, and those would be folded into the overall amount, Barroso said. But those individual efforts have not yet been implemented and even as proposed don't go far enough, he said. Germany's plan to commit about $40 billion to economic stimulus equates to just about 1 percent of its gross domestic product, not the 1.5 percent that the commission feels is needed to meaningfully address the current slowdown.