Consumer, Business Spending Probably Climbed as U.S. Recovery Accelerated

Consumer, Business Spending Probably Climbed as U.S. Recovery Accelerated

Consumer spending probably picked up in October, and factories took more machinery orders, showing the U.S. recovery strengthened entering the final quarter of 2010, economists said before reports this week.

Household purchases rose 0.5 percent after a 0.2 percent gain in September, according to the median estimate of 61 economists surveyed by Bloomberg News ahead of Nov. 24 figures from the Commerce Department. The same day, another report from the agency may show bookings for durable goods excluding cars and aircraft climbed 0.6 percent.

A better job market and bigger paychecks may give consumers the confidence to keep spending during the holiday season, broadening the economic rebound beyond manufacturing. Minutes from the Federal Reserve’s meeting this month may help explain why policy makers decided to begin supplying the world’s largest economy with an additional $600 billion in monetary stimulus.

“As businesses invest more and hire more, it fuels consumer spending in what we hope becomes a self-sustaining cycle,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “We’re seeing evidence of consumer demand returning.”

Companies like Dell Inc. and Caterpillar Inc. are among those benefiting from gains in exports and investments to replace outmoded equipment. Businesses added 159,000 workers to payrolls in October, a fourth month of gains exceeding 100,000, according to Labor Department figures on Nov. 5. Unemployment held at 9.6 percent.

Incomes Grow

The Commerce Department’s consumer spending report will also show personal income rose 0.4 percent last month after dropping 0.1 percent in September, according to the median estimate of economists surveyed.

Auto dealers are among retailers seeing demand improve. Car sales in October rose to a 12.25 million unit annual pace, the highest since the government’s cash-for-clunkers program in August 2009, industry data showed this month.

The projected gain in durable goods bookings excluding volatile demand for transportation equipment would follow a 0.4 percent decline the prior month. Total durable goods orders were little changed after a 3.5 percent gain in September, according to economists surveyed.

Dell, the third-largest supplier of personal computers, last week posted earnings in the fiscal third quarter that beat analysts’ predictions. Dell benefited from cheaper prices for parts and buoyant spending from companies that are updating aging personal computers and servers.

‘Refresh Cycle’

“The refresh cycle is very much in full bloom,” Chief Executive Officer Michael Dell said on a Nov. 18 call with analysts.

Manufacturers like Caterpillar, the world’s biggest maker of earthmoving equipment, are filling orders from China and Brazil and domestic customers as firms upgrade equipment and boost plant capacity to meet rising consumer demand.

“The recovery is happening,” Doug Oberhelman, Caterpillar’s chief executive officer, said in an Oct. 21 interview with Bloomberg Television. “The numbers are increasing monthly for us in North America and elsewhere.”

The strength in investment helps explain why shares of machinery and parts makers have outperformed the broader index. The Standard & Poor’s Supercomposite Machinery Index is up 34 percent this year, compared with a 7.6 percent gain for the S&P 500.

The economy grew at a 2.4 percent annual pace in the third quarter, more than 2 percent pace estimated last month, according to the median forecast of economists surveyed ahead of revised figures from the Commerce Department on Nov. 23.

Home Sales

Housing, the industry that triggered the worst recession in seven decades, is struggling to recover after a homebuyers’ tax credit expired in April and foreclosures keep adding to inventory.

Home sales dropped to a 4.80 million annual pace in October from a 4.84 million rate the prior month, reflecting decreasing demand for existing houses, according to economists surveyed.

The median forecast of economists projected a report from the National Association of Realtors on Nov. 23 will show purchases of previously sold houses fell 1.1 percent to a 4.48 million pace last month. Foreclosure moratoriums across the country along with government investigations into faulty paperwork threaten to delay a recovery as houses slated for repossession take longer to come to market.

Foreclosures

Distressed purchases, which include foreclosures and short- sales in which the bank agrees to take less than the full amount of the mortgage, accounted for 35 percent of existing-home sales in September, according to the agents’ group.

Demand for new homes rose 2.4 percent to a 315,000 annual pace in October, economists forecast before a Nov. 24 report from the Commerce Department. Sales in September were 78 percent below the record reached in July 2005.

On Nov. 23, the Fed will release the minutes of its Nov. 2- 3 policy meeting that led to a second round of unconventional monetary easing in a bid to lower unemployment and prevent inflation from slowing even more. The report will also contain policy makers’ updated economic forecasts.

Bloomberg Survey
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Release Period Prior Median
Indicator Date Value Forecast
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GDP Annual QOQ% 11/23 3Q S 2.0% 2.4%
Personal Consump. QOQ% 11/23 3Q S 2.6% 2.5%
Exist Homes Mlns 11/23 Oct. 4.53 4.48
Exist Homes MOM% 11/23 Oct. 10.0% -1.1%
Durables Orders MOM% 11/24 Oct. 3.5% 0.0%
Durables Ex-Trans MOM% 11/24 Oct. -0.4% 0.6%
Cap Goods Core MOM% 11/24 Oct. -0.2% 1.0%
Pers Inc MOM% 11/24 Oct. -0.1% 0.4%
Pers Spend MOM% 11/24 Oct. 0.2% 0.5%
Initial Claims ,000’s 11/24 20-Nov 439 435
U of Mich Conf. Index 11/24 Nov. F 69.3 69.5
New Home Sales ,000’s 11/24 Oct. 307 315
New Home Sales MOM% 11/24 Oct. 6.6% 2.4%
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source: bloomberg.com