Consumer Spending at 6-Month Low : Economy: The 0.3% decline means that the economy “has virtually stopped growing,” one analyst said.

WASHINGTON —  Consumer spending dropped 0.3% in October--the biggest decline in six months, the Commerce Department reported Wednesday, adding to mounting evidence that the economy is still sputtering on the eve of the holiday shopping season.

The decline in consumer spending, which accounts for roughly two-thirds of the nation’s economic activity, is the largest since a 0.5% drop in April, the department said.

The spending report, along with other economic indicators released Wednesday, prompted some economists to question Bush Administration assertions that initial signs of recovery earlier in the year signaled that a sustained economic upswing was in progress.

Although the economy grew slightly in the third quarter after two consecutive quarters of contraction, recent indicators suggest that consumer confidence is falling just as retailers gear up for the holiday shopping season that accounts for much of their annual sales.

On Tuesday, the Conference Board reported that consumer confidence fell in November to its lowest level in more than 10 years, and earlier in the week public opinion polls by the Los Angeles Times and the New York Times found that Americans remain negative on the course of the economy.

The latest spending figures show that the economy has “virtually stopped growing,” acknowledged Lawrence A. Hunter, acting chief economist at the Commerce Department.

Analysts said the decline in consumer spending is primarily attributable to slow growth in personal income, which increased only 0.2% in October, the smallest gain since July.

Although economists said the consumer spending figures reflect a flat economy, they do not necessarily indicate that conditions are rapidly deteriorating.

Pan G. Yatrakis, an economist at the Center for Economic Analysis in Connecticut, said the spending report and other indicators lead him to believe that a dramatic improvement in the economy is not probable in the next month or two, but he does not expect dramatic slippage either.

“I think this holiday season is going to be about as bad as last year’s--but not any worse,” Yatrakis said.

Giulio Martini, an economist at Sanford C. Bernstein & Co. in New York, noted that consumer spending was down not only in October but also for the entire third quarter. “It’s setting you up for a (fourth) quarter in which spending is likely to be flat or slightly down,” he said.

But Martini said he does not think that the decrease in consumer spending heralds a further downtown in the economy. He said the economy has begun to rebound from recession, although the recovery is weak and sluggish.

“The economy is still stuck in a sluggish growth mode--and there are still no signs of acceleration--yet neither are there signs of a sharp decline,” he said.

Michael Barker, an economic adviser who has advised Democratic political candidates, said the sharp drop in consumer spending should not come as a surprise.

“With all the gloomy economic news, and consumer confidence at its lowest point in a decade or more, people just aren’t going to spend,” he said. “The public suspects that nothing can be done in the short term to improve (the economy), so they’re cutting back and they’re deferring major purchases.”

In contrast with the consumer spending report, other economic indicators released Wednesday appeared more positive.

Orders for “big-ticket” durable goods, which had fallen for two previous months, rose 0.3% in October, the Commerce Department reported. Meanwhile, the Labor Department said the number of new unemployment claims fell by 80,000 in mid-November, the biggest weekly drop in 10 years.

Some economists discounted the positive readings, saying they appear to reflect statistical anomalies and should not be interpreted as sure signs that the economy is rebounding.

The increase in orders for durable goods is encouraging, Yatrakis said, but it is attributable in large part to increased defense spending. The gain may merely reflect a rebound from a substantial drop in defense spending the previous month, he said.

Similarly, the level of new unemployment claims may have been artificially low because the decline occurred during the week that included the Veteran’s Day holiday. Some economists, however, said the drop should not be discounted altogether because the holiday traditionally has not caused such a substantial drop in claims.

The Commerce Department also released a report showing that the merchandise trade deficit increased to $20.49 billion in the July-September quarter. The 33% increase put the deficit at its highest level this year.

Imports were up 4.5% for the three months, while exports rose only 0.3%.

Edward M. Bernstein, an economist at the Brookings Institution, said the increase in the trade deficit reflects the big increase in imports, especially automobiles. While U.S. exports of farm products are up, he said, exports of non-farm products fell slightly because of recessions in Europe and Canada.

What the Numbers Say

Just-released government economic figures:

* Consumers: Spending dropped a sharp 0.3% in October, the biggest decline in six months. This follows reports of falling consumer confidence.

* Personal Income: Personal income in October rose a tiny 0.2%, the poorest showing since July and a reflection of rising unemployment. A key salary index actually declined, but savings were up.

* Trade: The U.S. merchandise trade deficit was up 33% in the July-September quarter to $20.49 billion, the highest level this year.

* Jobs: New claims for unemployment insurance fell by 80,000 in mid-November.

* Goods: Orders for “big-ticket” durable goods, which had fallen for two consecutive months, rose 3% in October, but included military orders.

Income Growth is Sluggish . . .

Personal income in trillions of dollars, seasonally adjusted annual rate Oct., ‘91: 4.86 Sept., ‘91: 4.85 Oct., ‘90: 4.70

Source: Commerce Department

. . . Consumers Cut Back on Spending

Personal spending in trillions of dollars, seasonally adjusted annual rate Oct., ‘91: 3.84 Sept., ‘91: 3.86 Oct., ‘90: 3.72

Source: Commerce Department

Orders Gain on Military Spending

New orders of durable goods in billions of dollars, seasonally adjusted annual rate Oct., ‘91: 123.8 Sept., ‘91: 120.2 Oct., ‘90: 130.9

Source: Commerce Department