Consumer spending flags, construction plummets

By Joanne Morrison

WASHINGTON (Reuters) - Consumer spending inched up by an unexpectedly small 0.2 percent last month and construction spending tumbled, according to reports on Friday that heightened concerns on the health of the economy.

While personal spending rose slightly, the Commerce Department said consumer prices climbed an even greater 0.3 percent, leaving inflation-adjusted spending flat in October after a slim 0.1 percent rise in September.

"You're looking at a very slow profile for the fourth quarter, particularly with regards to consumer spending," said Cary Leahey, senior managing director at Decision Economics in New York. "This is another reason for the Fed to lower interest rates."

A separate Commerce Department report showed construction spending fell 0.8 percent as home building continued to wither. The drop was the biggest since July and it took construction spending down to a $1.158 trillion annual rate, the lowest in two years.

Rising delinquencies in the risky subprime mortgage market will likely prolong the deterioration.

A Federal Reserve Bank of New York report on Friday showed that 12 percent of U.S. subprime adjustable-rate mortgages were delinquent by at least 60 days and 7 percent were in foreclosure.

U.S. stocks were up in early afternoon and prices for U.S. government securities fell as the gloomy data helped reinforce expectations the Federal Reserve would lower borrowing costs at an upcoming meeting on December 11.

That sentiment was reinforced by Philadelphia Federal Reserve Bank President Charles Plosser who said there was uncertainty from the renewed turmoil in financial markets.