By Vicki Needham - 10/29/12 02:26 PM EDT
Adjusting for inflation, incomes were flat after a 0.3 percent drop in August while consumer spending was up 0.4 percent after a 0.1 percent increase in the previous month, the report showed.
However, consumers saved less in September — with savings falling to $395 billion in September, compared with $445.1 billion in August — dropping to a rate of 3.3 percent last month from 3.7 percent in August and 4.1 in July.
In the third quarter, the economy expanded at a 2 percent annual rate, with consumer spending growing at a 2 percent rate, driving much of the growth, which ran ahead of the 1.3 percent rate in the April-June quarter.
Despite the uptick, overall growth still lacks the punch needed to lower the unemployment rate.
Consumers are more optimistic about the overall economy with gasoline prices falling slightly, the labor market showing some improvement and the housing market making strides toward a more robust recovery.
Confidence hit a five-year high in the last week's Thomson Reuters/University of Michigan final gauge of sentiment for October.
Still, businesses and consumers remain reluctant to go all-in on the economy with the uncertainty of the looming fiscal cliff, a mix of spending cuts and tax increases, that Congress must solve before the end of the year.
Republican nominee Mitt Romney continues to press his point that Obama's policies have hampered a more robust economic recovery.
Meanwhile, the president is arguing that he kept the nation from plunging deeper into the recession and that Romney would reinstate policies that led to the recession and financial crisis.
On Friday, the final jobs report showing that upward of 140,000 jobs were created in October, with the jobless rate going up to 7.9 percent, a figure that some economists say probably won't sway voters toward either candidate.