INSTANT VIEW: Consumer spending fell in Sept

NEW YORK (Reuters) - U.S. consumer spending fell in September for the first time in five months as the boost from a government auto incentive faded, data showed on Friday, adding to fears that consumers may be pulling back as they head into the last quarter of the year.

KEY POINTS: * The Commerce Department said spending fell 0.5 percent, the largest decline since December, after an upwardly revised 1.4 percent increase in August. * Consumer spending in August was previously reported to have advanced 1.3 percent. * September's decline was in line with market expectations. Consumer spending, which normally accounts for over two-thirds of U.S. economic activity, in August was bolstered by the popular "cash for clunkers" program that gave discounts on some new motor vehicle purchases.

COMMENTS:

DAVID ADER, HEAD OF GOVERNMENT BOND STRATEGY, CRT CAPITAL GROUP, STAMFORD, CONNECTICUT:

"While the figures are not so far from expectations, we'd emphasize in the spending component that this shows that the third-quarter gain in consumption was front-loaded, i.e. cash for clunkers, and so consumption momentum fell sharply to the end of the third quarter. Further, we note wages too came off and that savings rebounded somewhat. So we'd skew this to the bond-friendly side as it implies momentum didn't continue into the current quarter."

PETER JANKOVSKIS, CO-CHIEF INVESTMENT OFFICER AT OAKBROOK INVESTMENTS LLC IN LISLE, ILLINOIS.

"The consumer spending data was largely in line with what was forecast.

"The fact that September held up well after end of the cash-for-clunkers program is a good sign.

The fact that it wasn't worse than expected is putting a floor under the futures right now. It's not positive news but it may be preventing it from falling further."

PETER BOOCKVAR, EQUITY STRATEGIST, MILLER TABAK + CO, NEW YORK

"As a result of the spending drop relative to flat income, the savings rate rose to 3.3 percent from 2.8 percent. (But) after bottoming in April 2005, the increase in the savings rate is still not even back to its 30-year average of 5.7 percent and remains well off its high in 1981.The transition of depending more on savings and less on credit and the wealth effect of asset prices is a healthy but long term process. The ideal way for the economy though of raising the savings rate is to rely more on income growth and less on spending cuts. Today's September data was captured in yesterday's Q3 GDP report but we can at least see how the quarter ended in terms of spending."

BRIAN DOLAN, CHIEF CURRENCY STRATEGIST, FOREX.COM, BEDMINSTER, NEW JERSEY:

"The U.S. data was all in line with expectations, so we haven't seen much reaction in foreign exchange. Wage and price pressures are tame, but if the Fed were to change language, they won't be doing it in response to any kind of inflation pressure, because those will take a long time to materialize. If they change language, they will be setting the ground to withdraw some extraordinary accommodation and to normalize rates rather than raise them. On the data front, Chicago PMI and University of Michigan are more in focus, and I expect both to register some disappointment."

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:

"The issue of poor labor income remains quite front and center. The ability to finance consumer spending growth will come down to improvement in the labor market.

"The personal income and consumption set levels from which we start the fourth quarter and it looks like September was not too disadvantaged relative to the third-quarter average. The September results don't start the fourth quarter off as weakly as might have been feared."

IAN MORRIS, CHIEF ECONOMIST, HSBC SECURITIES, NEW YORK:

"There were not too many surprises, it was all pretty much roughly in line (with expectations). Cash for clunkers came out of spending, so spending was falling. Core PCE deflator was very low at 1.3 percent and it has probably still got lower to go. The year-over-year rate on the employment cost index was just 1.5, so there is no wage pressure whatsoever, and in fact that was the lowest outcome since the series began in the early 1980s.

"It sets up a very weak fourth quarter for consumption, it might be around flat to up one percent annualized in the fourth quarter. But if inventories add and you get some rise in business investment you could get a much more decent fourth quarter of around three percent despite weak consumption, but the other components have got to play their part now."

MARKET REACTION: STOCKS: U.S. stock index futures cut losses BONDS: U.S. Treasury debt prices briefly add small gains DOLLAR: U.S. dollar holds gains versus euro