U.S. Consumer Spending Probably Climbed as Income Rose Most in Five Months

U.S. Consumer Spending Probably Climbed as Income Rose Most in Five Months

Consumer spending probably climbed in October as incomes grew by the most since May, indicating the biggest part of the U.S. economy will bolster the recovery, economists said a report will show this week.

Purchases rose 0.3 percent last month, according to the median estimate of 69 economists in a Bloomberg News survey before Commerce Department figures due on Nov. 23. Incomes also climbed 0.3 percent, the report may show.

An October gain in household spending, which accounts for about 70 percent of the economy, bodes well for the holiday shopping season that kicks off this week. Improving demand and the year-end expiration of a tax break may also spur companies to buy more equipment in the final months of 2011, helping the U.S. weather the effects of Europe’s debt crisis.

“This quarter is getting off to a good start,” said Omair Sharif, an economist at RBS Securities Inc. in Stamford, Connecticut. “Consumers are continuing to spend. Business investment is still helping to drive the recovery” at a time when “there are a lot of risks, especially from Europe.”

Lower fuel prices may be keeping pessimism from building. The Thomson Reuters/University of Michigan final index of consumer sentiment, due on Nov. 23, may have climbed to 64.5 this month, the highest since June, economists in the Bloomberg survey forecast.

Luxury retailer Saks Inc. (SKS) reported it is seeing brisk sales for the more expensive products.

Higher-end consumers are holding up “pretty well,” Stephen Sadove, chief executive officer, said in a Bloomberg Television interview on Nov. 18. The average income of the Saks shopper is $200,000 a year, he said.

Black Friday
Some retailers are more cautious, with unemployment hovering near or above 9 percent for more than two years and job growth limited. The Thanksgiving holiday is Nov. 24. The following day is Black Friday, the unofficial start to the holiday season.

“Until the U.S. begins to see robust improvement in jobs and signs of recovery in the housing market, we believe consumer spending will likely continue to be soft and uneven,” Doug Scovanner, chief financial officer at Target Corp. (TGT), the second- largest U.S. discount retailer, said on a conference call with analysts Nov. 16.

The Standard & Poor’s Supercomposite Retailing Index of 93 companies has increased 3.3 percent since the end of last year compared with a 3.3 percent decline in the broader S&P 500.

Fed Policy
Federal Reserve officials meantime are divided over whether additional steps are needed to lower borrowing costs and boost job creation. Minutes of their Nov. 1-2 meeting, to be released on Nov. 22, may shed more light on their discussions.

“We cannot be satisfied with the current state of the economy or the outlook for the next few years,” Federal Reserve Bank of New York President William C. Dudley said in a Nov. 18 speech in Albany, New York.

Manufacturers are holding on to gains propelled by U.S. exports, which surged to a record level in September. Demand for goods meant to last at least three years, excluding airplanes and automobiles, was little-changed in October after jumping 1.8 percent the prior month, the most since March, economists in the Bloomberg survey predicted. The Commerce Department will release the figures on Nov. 23.

In the same report, a projected 1.2 percent drop in total bookings for durable goods would reflect a plunge in demand for commercial aircraft, which is often volatile, economists said. Chicago-based Boeing Co. said it received seven aircraft orders in October, down from 59 placed the previous month.

Housing Depressed
Housing, by contrast, is wrestling with foreclosure-driven declines in property values that have kept buyers on the sidelines. Sales of previously owned homes fell in October to a 4.8 million annual rate, the lowest in three months, the median forecast in the Bloomberg survey showed. The National Association of Realtors will release the data tomorrow.

A day later, the Commerce Department may report the economy expanded at a 2.5 percent annual rate in the third quarter, the same as the government’s prior estimate, according to the Bloomberg survey median.

The U.S. may grow at an even faster clip in the final three months of this year, according to recently raised forecasts from economists at JPMorgan Chase & Co., Morgan Stanley & Co. and Deutsche Bank Securities.

The outlook beyond the fourth quarter may depend in part on Europe, where policy makers are struggling to contain a financial crisis that began two years ago in Greece and which has now spread to Italy. There is also fiscal policy uncertainty in the U.S., where the congressional supercommittee faces a Nov. 23 deadline to craft measures to cut the budget deficit by $1.2 trillion over 10 years.

Bloomberg Survey

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Release Period Prior Median
Indicator Date Value Forecast
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Exist Homes Mlns 11/21 Oct. 4.91 4.80
Exist Homes MOM% 11/21 Oct. -3.0% -2.2%
GDP Annual QOQ% 11/22 3Q S 2.5% 2.5%
Personal Consump. QOQ% 11/22 3Q S 2.4% 2.4%
GDP Prices QOQ% 11/22 3Q S 2.5% 2.5%
Core PCE Prices QOQ% 11/22 3Q S 2.1% 2.1%
Durables Orders MOM% 11/23 Oct. -0.6% -1.2%
Durables Ex-Trans MOM% 11/23 Oct. 1.8% 0.0%
Cap Goods Core MOM% 11/23 Oct. 2.9% -1.0%
Pers Inc MOM% 11/23 Oct. 0.1% 0.3%
Pers Spend MOM% 11/23 Oct. 0.6% 0.3%
PCE Deflator YOY% 11/23 Oct. 2.9% 2.7%
Core PCE Prices MOM% 11/23 Oct. 0.0% 0.1%
Core PCE Prices YOY% 11/23 Oct. 1.6% 1.7%
Initial Claims ,000’s 11/23 19-Nov 388 390
Cont. Claims ,000’s 11/23 12-Nov 3608 3610
U of Mich Conf. Index 11/23 Nov. F 64.2 64.5
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source: bloomberg.com