By Shobhana Chandra
Oct. 31 (Bloomberg) -- Spending by U.S. consumers probably dropped in September, capping its weakest quarter in three decades and signaling the economy will continue to slump in coming months, economists said before a report today.
Purchases fell 0.2 percent after no change in August, according to the median forecast in a Bloomberg News survey of 73 economists. Separate figures may show consumer confidence plunged by the most on record this month.
Job losses, soaring food and fuel costs, and falling property values brought an end to the longest expansion in spending on record and made the economy the most important issue in next week's presidential election. The credit crunch and collapse in sentiment this month indicate consumers will keep retrenching.
``It's the first leg down toward much worse numbers,'' said Maxwell Clarke, chief U.S. economist at IDEAglobal in New York. ``The credit crisis will magnify the weakness in the economy.''
The Commerce Department will release the spending report at 8:30 a.m. in Washington. Bloomberg survey estimates ranged from a 0.3 percent gain to a 1 percent drop. Incomes probably grew 0.1 percent last month, a fifth of the August increase.
At 10 a.m., Reuters/University of Michigan figures may show the index of consumer sentiment fell to 57.5 from 70.3 in September, according to the Bloomberg survey median. The drop, the biggest since monthly records began in 1978, would match the preliminary estimate issued on Oct. 17.
A report from Chicago purchasing managers, due at 9:45 a.m., is projected to show businesses contracted this month.
Fed Warning
The Federal Reserve this week warned of further ``downside risks'' to growth even after cutting interest rates twice in October and injecting billions of dollars to unclog credit. Policy makers on Oct. 29 reduced the benchmark rate by a half percentage point to 1 percent, matching a half-century low. They also forecast inflation will moderate.
Today's spending report will also probably show inflation started to cool at the end of the third quarter as the economy stumbled. Prices excluding food and fuel, so-called core costs, probably climbed 0.1 percent last month after increasing 0.2 percent in August, according to economists surveyed.
The economy contracted at a 0.3 percent annual pace last quarter, Commerce reported yesterday. Consumer spending fell at a 3.1 percent rate, the first drop since 1991 and the biggest since 1980, after President Jimmy Carter imposed credit controls.
Households cut spending on non-durable goods, such as clothing and food, by the most since 1950, and slashed purchases of durable goods by the most since 1987, the GDP report showed.
Economy, Election
The flagging economy is the main reason Democratic presidential candidate Barack Obama, an Illinois senator, is ahead of Republican rival Senator John McCain of Arizona in most polls. On the question of which candidate they trust most on the economy, voters in Florida picked Obama over McCain by a 9-point margin, and in Ohio, the Democrat leads by 12 points, according to a Bloomberg/Los Angeles Times poll issued this week.
American Express Co., the largest U.S. credit-card company by purchases, said yesterday it will slash 7,000 jobs as consumers spend less and defaults rise. Cardholders failed to repay loans in the third quarter at almost twice the rate of a year earlier, and the company set aside $1.4 billion for loan losses.
The job cuts ``will help us to manage through one of the most challenging economic environments we've seen in many decades,'' Chief Executive Officer Kenneth Chenault said in a statement.
Bloomberg Survey
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Pers Pers ChicagoU of Mich
Inc Spend PM Conf.
MOM% MOM% Index Index
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Date of Release 10/31 10/31 10/31 10/31
Observation Period Sept. Sept. Oct. Oct. F
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Median 0.1% -0.2% 48.0 57.5
Average 0.0% -0.3% 47.9 57.3
High Forecast 0.4% 0.3% 54.5 63.0
Low Forecast -0.5% -1.0% 43.6 50.0
Number of Participants 68 73 58 60
Previous 0.5% 0.0% 56.7 57.5
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4CAST Ltd. -0.5% -0.5% 45.0 59.5
Action Economics -0.3% -0.4% 47.0 57.5
AIG Investments 0.3% -0.2% 45.0 58.0
Aletti Gestielle SGR 0.1% -0.4% 48.0 58.3
Argus Research Corp. 0.2% 0.3% 54.0 55.0
Banc of America Securitie -0.3% -0.6% 48.0 ---
Bank of Tokyo- Mitsubishi 0.2% -0.1% 46.5 57.8
Bantleon Bank AG 0.1% -0.3% 48.0 58.5
Barclays Capital 0.0% -0.1% 49.0 59.0
BMO Capital Markets -0.1% -0.3% 48.7 57.0
BNP Paribas -0.1% -0.4% 47.0 58.0
Briefing.com 0.2% -0.1% 50.0 ---
CIBC World Markets -0.5% -0.6% --- 57.5
Citi -0.2% -0.3% 44.0 59.0
ClearView Economics -0.2% -0.4% --- ---
Commerzbank AG 0.0% -0.3% 48.0 57.5
Credit Suisse 0.0% -0.1% 45.0 57.5
Daiwa Securities America 0.2% -0.1% --- ---
Danske Bank 0.1% -0.4% --- 58.0
DekaBank 0.2% -0.2% 47.0 51.0
Desjardins Group -0.3% -0.3% 48.0 57.5
Deutsche Bank Securities 0.3% 0.2% 48.0 57.5
Deutsche Postbank AG --- -0.2% --- 57.0
Dresdner Kleinwort --- -0.2% 48.0 57.5
DZ Bank 0.2% -0.2% 47.5 58.0
First Trust Advisors 0.1% -0.2% 54.5 60.0
Fortis --- -0.2% 48.0 57.5
FTN Financial -0.3% -0.8% 46.0 54.0
Goldman, Sachs & Co. 0.2% -0.2% 48.0 ---
H&R Block Financial Advis 0.2% -0.2% 47.0 56.5
Helaba 0.1% -0.3% 50.0 56.5
Herrmann Forecasting -0.1% -0.4% 43.6 54.5
High Frequency Economics 0.1% -0.5% 53.0 57.5
IDEAglobal 0.1% -0.1% 50.0 58.0
IHS Global Insight 0.2% -0.3% --- 55.0
Informa Global Markets 0.0% -0.2% 47.0 57.6
ING Financial Markets 0.1% -0.8% --- ---
Insight Economics 0.2% -0.4% 48.0 57.0
Intesa-SanPaulo -0.2% -0.2% 45.0 59.0
J.P. Morgan Chase 0.2% -0.1% 47.0 57.5
Janney Montgomery Scott L 0.0% 0.1% --- ---
JPMorgan Private Client 0.1% 0.2% 48.0 57.5
Landesbank Berlin -0.2% -1.0% 48.0 59.6
Landesbank BW 0.0% -0.3% 47.0 57.5
Maria Fiorini Ramirez Inc 0.1% -0.2% 48.5 57.0
Merk Investments 0.1% -0.2% 48.7 58.0
Merrill Lynch 0.0% -0.2% 48.0 55.0
MFC Global Investment Man 0.1% -0.3% --- 57.0
Moody's Economy.com 0.0% -0.3% 49.0 57.5
Morgan Keegan & Co. 0.1% -0.3% --- ---
Morgan Stanley & Co. 0.1% -0.3% --- ---
National City Corporation 0.2% -0.3% 49.8 50.0
Natixis --- -0.1% --- ---
Newedge 0.2% -0.2% 49.2 57.5
Nomura Securities Intl. 0.0% 0.0% 49.0 ---
Nord/LB 0.2% 0.0% 48.0 56.0
PNC Bank 0.3% -0.2% --- ---
RBS Greenwich Capital -0.1% -0.3% --- 57.5
Ried, Thunberg & Co. --- 0.0% 50.0 57.5
Schneider Trading Associa -0.1% -0.4% 48.3 58.0
Scotia Capital 0.1% -0.4% --- ---
Societe Generale -0.2% 0.2% 48.0 57.0
Standard Chartered --- --- 45.0 56.0
Stone & McCarthy Research 0.2% 0.0% 47.8 61.0
TD Securities 0.1% -0.3% 45.0 56.0
Thomson Financial/IFR 0.2% -0.4% 46.0 57.0
Tullett Prebon 0.1% -0.2% 47.0 57.0
UBS Securities LLC 0.2% -0.4% 45.0 58.0
Unicredit MIB 0.0% --- --- ---
University of Maryland 0.0% -0.3% 50.0 57.5
Wachovia Corp. 0.4% -0.2% --- ---
Wells Fargo & Co. -0.3% -0.4% 47.0 57.5
WestLB AG 0.1% -0.2% 49.7 63.0
Westpac Banking Co. 0.0% -0.3% 45.0 60.0
Wrightson Associates --- 0.0% 50.0 57.5
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To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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