U.S. Consumer Spending Probably Rose in November as Wages Grew

U.S. Consumer Spending Probably Rose in November as Wages Grew

Dec. 21 (Bloomberg) -- Consumer spending in the U.S. probably rose by the most in 10 months in November as wages grew and shoppers took advantage of early holiday discounts, economists said ahead of a government report today.

The 0.7 percent increase in purchases followed a 0.2 percent gain the prior month, according to the median of 73 estimates in a Bloomberg News survey. One of the report's inflation measures, the Federal Reserve's favorite, probably accelerated.

Gains in jobs and salaries may avert a collapse in spending, which accounts for more than two-thirds of the economy, as home values fall and fuel costs rise. The jump in sales last month reduced the odds the economy would contract this quarter, even as recent retail surveys suggest shopping has cooled in December.

``We have yet to see the consumer panic,'' said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado. ``The real takeaway from November is an explosion in spending, and soaring prices. The Fed will have to come to grips with inflation.''

The Commerce Department's report is due at 8:30 a.m. in Washington. Spending estimates ranged from gains of 0.2 percent to 1.1 percent, based on the Bloomberg survey. Incomes probably rose 0.5 percent in November, the most in four months, based on the survey median.

At 10 a.m., the Reuters/University of Michigan report on consumer sentiment may show confidence dropped to a two-year low in December.

Price Increases

Today's Commerce figures may also show core prices, which are tied to spending and exclude food and fuel, rose 0.2 percent in November for a third month, according to the Bloomberg survey. The measure probably increased 2 percent from November 2006, the biggest year-over-year gain in six months.

The tone of today's report will hinge on whether the jump in prices accounted for much of the expected increase in spending, economists said.

A disappointing reading would suggest demand for other goods is sagging. Higher energy bills may eat into Americans' purchasing power, while lower property values make it harder for owners to tap home equity for extra cash.

Last week's report of a bigger-than-forecast jump in November consumer prices reignited concern inflation may pick up. That would give the Fed less room to trim interest rates to fend off a recession, economists said.

``Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation,'' policy makers said in a statement after their Dec. 11 meeting.

More Jobs

The job market may be one bright spot for Americans, as the housing recession extends into 2008 and the subprime mortgage crisis makes borrowing tougher. Payrolls rose by 94,000 in November and the jobless rate was unchanged at 4.7 percent for a third month, the Labor Department said this month.

Some merchants took matters into their own hands last month to stimulate sales. Bentonville, Arkansas-based Wal-Mart Stores Inc., the world's largest retailer, said November sales rose within the company's forecast as shoppers stocked up on holiday food and gifts. Wal-Mart increased post-Thanksgiving discounts to lure shoppers into its stores early in the season.

Weekly surveys suggest the November spending boom may not be sustained. Holiday sales declined in the seven days ended Dec. 15 for the third straight week, according to ShopperTrak RCT Corp. This year's holiday season may be the weakest since 2002, according to the National Retail Federation.

December has produced ``a little slower start to the season than we had hoped,'' Brad Anderson, chief executive officer of Best Buy Co., the largest U.S. consumer-electronics retailer, said in a Dec. 18 interview. ``That's pretty much the same pattern for the past few years. We're hoping that we'll see what we've seen in the past.''

Best Buy this week reported a 52 percent jump in profit for the quarter ended Dec. 1 and raised its annual forecast on demand for flat-panel televisions, computers and video-game consoles.

BLOOMBERG