Spending Likely Slowed as Home Sales Fell: U.S. Economy Preview

Spending Likely Slowed as Home Sales Fell: U.S. Economy Preview


March 22 (Bloomberg) -- U.S. consumer spending probably slowed in February as business investment and housing tumbled, underscoring the urgency of government efforts to thwart a deeper recession, economists said before reports this week.

Purchases rose 0.2 percent after gaining 0.6 percent in January, according to the median estimate in a Bloomberg News survey ahead of Commerce Department figures due March 27. Combined sales of new and existing homes likely dropped to the lowest level in at least a decade and orders for durable goods fell for a seventh straight month, other reports may show.

Mounting job losses and shrinking wealth are squeezing the consumer spending that makes up about 70 percent of the economy as Americans forego expensive items such as cars and homes. The economy may keep shrinking until Obama administration and Federal Reserve initiatives to calm credit markets take hold.

“Consumers will be more inclined to put off bigger-ticket purchases until they start to see a deceleration in job losses,” said Maxwell Clarke, chief U.S. economist at IDEAglobal in New York. Clarke said the first half of this year is “mostly about getting our legs back under us,” and that a recovery won’t happen until later this year.

Commerce’s spending report may also show incomes fell for the third time in the past four months, economists said.

Purchases of existing homes fell 0.9 percent last month to an annual pace of 4.45 million, according to the median estimate of economists surveyed. The National Association of Realtors’ report is due tomorrow.

Durable Goods

Sales of new homes, due from Commerce on March 25, probably fell 2.9 percent in February to an annual pace of 300,000, the survey median shows. That would bring the combined sales rate to 4.75 million, the lowest since comparable figures began in January 1999.

Also on March 25, Commerce figures may show bookings for goods meant to last several years fell 2.4 percent in February, according to the survey. Durable-goods orders excluding transportation also probably dropped.

The economy has lost 4.4 million jobs since the recession began in December 2007, and the unemployment rate in February jumped to 8.1 percent, the highest level since December 1983. The U.S. Postal Service last week said it will close offices, cut jobs and offer early retirement to about 150,000 workers.

The Standard & Poor’s 500 Index is already down 15 percent this year following a 38 percent slide in 2008, its worst year since the Great Depression.

Policy Moves

Fed figures showed household wealth fell by a record $5.1 trillion in the final quarter of 2008, as stock portfolios and home values plummet. The housing slump may extend well into its fourth year as rising foreclosures return more properties to the market and demand stays depressed.

President Barack Obama’s $787 billion stimulus package, enacted last month, was designed to create or save millions of jobs and jolt the economy out of recession through infrastructure spending and tax cuts. A separate plan is aimed at stemming foreclosures and helping struggling homeowners manage their mortgage bills.

Treasury Secretary Timothy Geithner also is working on a plan to tackle the bad assets clogging banks’ balance sheets so they’ll resume normal lending to consumers and businesses.

The Fed, meanwhile, last week said it will buy as much as $300 billion of Treasuries and an additional $750 billion of agency mortgage-backed securities, and that the central bank will keep the benchmark interest rate near zero for an extended time.

Growth Data

Sales at U.S. retailers last month fell less than forecast and January’s gain was almost double the previous estimate, indicating the biggest part of the economy may be starting to stabilize. Still, a sustained recovery in purchases is unlikely while consumers worry about losing their paychecks.

The downturn is hurting companies from home builder Hovnanian Enterprises Inc. and Caterpillar Inc., the world’s largest maker of construction equipment, to automakers General Motors Corp. and Chrysler LLC, now dependent on government loans.

Commerce releases the last of three economic growth estimates on March 26, which may show the economy shrank at a 6.6 percent annual pace in the fourth quarter as consumer spending plunged, according to the survey. The contraction in gross domestic product would be deeper than the government’s prior projection and the worst since 1980.

FedEx Corp., a bellwether for the economy as the second- biggest American package deliverer, last week reported its first sales drop in at least a decade. The economy “will definitely be weak” for all of 2009, Chief Executive Officer Fred Smith said, though he doesn’t anticipate a “further significant decline.”

Economists also said a March 27 report will show the Reuters/University of Michigan index of consumer sentiment held near a 28-year low this month.

BLOOMBERG