Consumer Spending in the U.S. Probably Slowed in February

Consumer Spending in the U.S. Probably Slowed in February

March 28 (Bloomberg) -- Spending by U.S. consumers rose in February at the slowest pace in more than a year, another sign the economic expansion may be grinding to a halt, economists said before a report today.

Spending increased 0.1 percent last month, the smallest gain since September 2006, according to the median estimate of 68 economists surveyed by Bloomberg News. A separate report may show consumer sentiment fell to a 16-year low in March.

``Consumers are feeling pressure from lots of fronts,'' said John Silvia, chief U.S. economist at Wachovia Corp. in Charlotte, North Carolina. ``We're right in the middle of the recession right now.''

Spending, which accounts for more than two-thirds of the economy, is tapering off as Americans confront falling home prices, a loss of jobs and record energy costs. The report may also show inflation cooled last month, vindicating the Federal Reserve's decision to focus on reviving growth at a time when prices were accelerating.

``Although significant risks to the inflation outlook remain, the downward move delivers a modest lift to a Fed faced with one of the most challenging policy environments in its near 100-year history,'' said Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts.

The spending report, due from the Commerce Department at 8:30 a.m. in Washington, may also show incomes rose 0.3 percent for a second month, according to the survey median.

Spending estimates ranged from a drop of 0.4 percent to a 0.3 percent increase.

Confidence Slips

The Reuters/University of Michigan final sentiment index for March is forecast to fall to 70, according to the Bloomberg survey of economists, from 70.8 the prior month. That report is due at 10 a.m.

Consumer spending will grow to a 0.5 percent pace in the first quarter, the slowest rate since the 1991 recession, according to a Bloomberg survey of economists taken the first week of March.

Retail sales fell 0.6 percent in February from the prior month, a second decline in three months, the government said this month.

More and more economists are forecasting a recession as job, retail sales and manufacturing data have deteriorated this year. Martin Feldstein, the Harvard economics professor who heads the research group that determines when downturns begin, said this month that a contraction had already begun.

Little Growth

Economists surveyed by Bloomberg forecast a first-quarter growth rate of 0.1 percent, compared with a 0.6 percent pace in the October-to-December period. They forecast growth at a 0.5 percent pace in the second quarter.

Seeking to ease credit, restore confidence in financial markets and cushion the slowdown, the Fed last week lowered the benchmark overnight lending rate between banks by three-quarters of a percentage point to 2.25 percent.

``The tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarter,'' the Fed said. `Downside risks to growth remain.''

The report on spending is forecast to show that inflation is slowing. Core prices, which exclude food and fuel, rose 0.1 percent in February, the least since June, according to the survey median.

Weaker job and wage growth are affecting Americans. The economy lost 85,000 jobs in the first two months of the year, the biggest back-to-back drop since 2003.

Wages also aren't keeping up with inflation. Hourly earnings for the 12 months through February rose 3.7 percent, compared with a 4.4 percent increase in consumer prices for wage earners.

General Motors Corp. and Ford Motor Co. are among companies experiencing the slump in consumer demand first hand. Cars and light trucks sold at an average 15.25 million annual pace in the first two months of the year, the weakest two-month pace since 1998.

``It feels like there is a recession,'' Troy Clarke, General Motors Corp.'s North American chief, told reporters in Atlanta on March 11.

BLOOMBERG