Consumer Spending in U.S. Probably Rose at Slower Pace in July

Consumer Spending in U.S. Probably Rose at Slower Pace in July


Aug. 28 (Bloomberg) -- Consumer spending probably increased in July at half the pace of the previous month, a sign the biggest part of the economy will be slow to rebound, economists said ahead of reports today.

Purchases rose 0.2 percent after gaining 0.4 percent in June, according to the median forecast of 75 economists surveyed by Bloomberg News. Another report may show consumer sentiment fell in August for a second month.

Spending is projected to rise this quarter as auto dealers benefit from the government’s “cash-for-clunkers” plan, while retailers such as Kohl’s Corp. and J.C. Penney Co. struggle to lure households shaken by mounting job losses. A record drop in wealth may prompt Americans to reduce debt and boost savings, signaling consumers will play a smaller role in the recovery.

“Consumer spending is going to be pretty lackluster,” said Robert Mellman, an economist at JPMorgan Chase & Co. in New York. “Employment is contracting, and people are still pretty shell-shocked from the past decline in stock prices and home prices. The recovery is on track the rest of this year, but we really need the consumer to come on in 2010.”

The Commerce Department report is due at 8:30 a.m. in Washington. Spending estimates in the Bloomberg survey ranged from no change to a 0.6 percent increase.

The report is also projected to show incomes rose 0.1 percent in July after decreasing 1.3 percent the previous month, the most in four years. The drop reflected the fading boost from government stimulus-related tax cuts and transfers.

Sentiment Falls

At 10 a.m., Reuters/University of Michigan figures may show the index of consumer sentiment dropped to 64 from 66 in July, according to the Bloomberg survey median. Estimates ranged from 62 to 68. The measure would be up from a preliminary reading of 63.2 issued earlier this month.

Stocks are rising as reports indicate the economy is pulling out of the recession. The Dow Jones Industrial Average advanced 0.4 percent yesterday, rallying for the eighth straight day, the longest winning streak since April 2007.

Consumer spending, which accounts for about 70 percent of the economy, fell at a 1 percent pace in the second quarter, revised figures from the Commerce Department showed yesterday. Economists in a Bloomberg survey anticipated a 1.3 percent drop. The economy shrank at a 1 percent annual rate from April to June, also less than analysts’ median forecast.

While economists project that spending will start growing again this quarter, much of the gain will be driven by programs such as the Obama administration’s cash-for-clunkers plan.

Trade in Clunkers

Auto industry data showed sales of cars and light trucks rose to an 11.2 million unit annual pace in July, the most since September, after the government offered credits of as much as $4,500 to trade in gas-guzzlers for more fuel-efficient cars.

Sales at retailers in July fell 0.1 percent, the first drop in three months, as the boost from the automobile plan failed to overcome cuts at other merchants, according to government figures released on Aug. 13.

Forecasts call for below-average gains in spending due to stagnant incomes, a lack of jobs and an unemployment rate that may reach 10 percent early next year for the first time since 1983, according to a Bloomberg survey taken this month.

Purchases will probably climb at an average 1.6 percent quarterly rate through June 2010, compared with a 2.8 percent gain on average during the six-year expansion that ended in December 2007, the survey showed.

Company results signal shoppers are under pressure. J.C. Penney, the third-largest U.S. department-store chain, issued a third-quarter earnings forecast that trailed analysts’ estimates and said sales may fall 3 percent to 5 percent from the same period last year. Smaller rival Kohl’s said second- quarter profit fell 3 percent as sales at stores open for at least a year declined.

“People are still going to shop a little less and spend a little less than they have in the past,” Kevin Mansell, chief executive officer of Menomonee Falls, Wisconsin-based Kohl’s, said in a telephone interview on Aug. 13.

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