Personal Spending Probably Rose

Personal Spending Probably Rose

Dec. 16 (Bloomberg) -- Personal spending in the U.S. probably rose in November by the most in 10 months, fueled by income gains that will help the economy weather a deepening slump in homebuilding, economists said reports this week may show.

A 0.7 percent rise in purchases would follow a 0.2 percent October increase, according to the median estimate of economists surveyed by Bloomberg News ahead of the Commerce Department's Dec. 21 report. A separate Commerce report may show builders broke ground last month on the fewest houses in 14 years.

More jobs and growing wages will support consumer spending, which accounts for more than two-thirds of the economy, even as lower home values and credit restrictions push the housing recession into its third year. The figures bear out the Federal Reserve's forecast of ``moderate'' growth in coming months.

``The consumer is holding in there,'' said Conrad DeQuadros, a senior economist at Bear Stearns & Co. in New York. ``It looks like we are still seeing moderate growth despite the drag from the recession in housing.''

Incomes rose 0.5 percent in November, the most in four months, after a 0.2 percent gain, according to the median estimate in the Bloomberg survey.

The increase in wages reflects a job market that remains one of the few bright spots in the economy, economists said. Payrolls rose by 94,000 in November after increasing 170,000 in October, the Labor Department said Dec. 7. The jobless rate held at 4.7 percent for the third month.

Prices Increase

The income report may also show a price gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, rose 0.2 percent for a third month, economists forecast. The index probably gained 2 percent from November 2006, after a 1.9 percent year-over-year increase the prior month.

The figures would follow a report last week of a bigger- than-forecast increase in consumer prices, which reinforced concern that inflation remains a risk. That gives the Fed less leeway to keep trimming interest rates as the housing and credit markets deteriorate, economists said.

Housing starts, due from the Commerce Department on Dec. 18 dropped 4.3 percent to an annual rate of 1.176 million, according to the Bloomberg survey median. The pace was 1.229 million in October. Permits, a gauge of future construction, probably fell to a 1.15 million rate, the lowest since June 1993.

Builders Pessimistic

Declines in residential construction, which have subtracted from economic growth since the first quarter of 2006, will extend well into 2008, economists said. Homebuilder confidence in December held at a record low for a third month, a report tomorrow from the National Association of Home Builders/Wells Fargo is projected to show.

It's ``hard to tell'' if the worst is over, Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., the largest homebuilder in New Jersey, said in an interview Dec. 12. He said he was disappointed the Fed cut the benchmark target rate by only a quarter point to 4.25 percent a day earlier. ``I would have hoped for a little bolder move.''

Former Federal Reserve Chairman Alan Greenspan said on ABC's ``This Week'' program aired today that while the chance of a recession is about 50 percent, ``the real story is, with the extraordinary credit problems we're confronting, why the probabilities are not 60 percent or 70 percent.'' The reason, he said, is that low interest rates on long-term debt are helping business fund a ``significant part of its short-term liabilities.''

Exports and Inventories

Gains in exports and inventories propelled third-quarter growth to an annual rate of 4.9 percent, the strongest in four years, revised figures from the Commerce Department on Dec. 20 may show. The final estimate would be little changed from last month's preliminary data.

Growth will cool this quarter and early next year, economists said. A closely watched gauge of the economy's future dropped in November for a third time in four months, the Conference Board may report on Dec. 20. The index of leading economic indicators fell 0.3 percent, according to the Bloomberg survey median, as stocks decreased, building permits slumped, firings rose and consumers turned more pessimistic.

Moods didn't improve this month, a private report may show on Dec. 21. The Reuters/University of Michigan final index of consumer sentiment dropped at a two-year low in December, economists forecast.

BLOOMBERG