Consumer Spending Probably Decelerated: U.S. Economy Preview

Consumer Spending Probably Decelerated: U.S. Economy Preview


Aug. 23 (Bloomberg) -- Consumer spending in the U.S. probably rose in July at half the pace of the previous month, showing the biggest part of the economy is struggling to rebound, economists said before reports this week.

Purchases increased 0.2 percent after a 0.4 percent gain in June, according to the median estimate of 61 economists surveyed by Bloomberg News before a Commerce Department report Aug. 28. Other figures may show orders for long-lasting goods jumped and sales of new homes improved.

The government’s “cash-for-clunkers” plan revived auto sales last month just as Americans cut back on items such as furniture and electronics. Depressed home values and the biggest employment slump since the 1930s will prompt households to save more, meaning an economic recovery will be slow to gain speed even as housing and manufacturing stabilize.

“It’s hard to see consumer spending driving the economy forward given the losses of wealth that have occurred,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “The consumer isn’t going to play a leading role in this recovery,” he said, in part because “employment is going to keep falling.”

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 up to $4,500 to trade in gas-guzzlers for more fuel-efficient vehicles under the cash-for-clunkers program.

‘Cash-for-Clunkers’

The government said last week that it will stop accepting dealer applications for the incentive at 8 p.m. New York time tomorrow. The $3 billion program has recorded more than 489,000 dealer transactions worth $2.04 billion in rebates, according to Transportation Department data released Aug. 21.

Sales at U.S. retailers in July unexpectedly fell 0.1 percent, the first drop in three months, government figures showed on Aug. 13. Purchases excluding automobiles dropped 0.6 percent, also more than anticipated, as Americans cut back on everything from groceries to sporting goods and furniture.

Lowe’s Cos., the second-largest U.S. home-improvement retailer, said last week that sales in the three months ended July 31 fell 4.6 percent to $13.8 billion, below analysts’ estimates.

“Consumers are still under tremendous pressure, given the continued decline in housing prices and that we’re still losing jobs,” Robert Niblock, chairman and chief executive officer of the Mooresville, North Carolina-based company, said in an Aug. 17 telephone interview.

Cutting Costs

Larger rival Home Depot Inc. reported second-quarter results on Aug. 18 that topped analysts’ estimates as the Atlanta-based company cut expenses to partially offset a 9.1 percent drop in sales.

A weak labor market continues to sap consumers’ ability to spend. Payrolls fell by 247,000 last month, bringing total job losses to 6.7 million since the recession began in December 2007, the most of any contraction since the Great Depression.

The job cuts, coupled with rising stock prices, are causing measures of consumers’ outlooks to diverge this month. The Conference Board’s confidence index, due Aug. 25, is forecast to rise, while the Reuters/University of Michigan gauge on Aug. 28 is projected to fall.

The Standard & Poor’s 500 Index has climbed 52 percent since March 9, when it fell to a 12-year low.

Orders Climb

The rebound in demand for automobiles likely contributed to an increase in bookings at factories. Orders for durable goods, those meant to last several years, probably jumped 3 percent in July, reversing the previous month’s 2.5 percent decline, economists projected an Aug. 26 report from the Commerce Department will show.

Excluding demand for transportation equipment, which tends to be volatile, orders probably increased 0.9 percent.

The worst housing slump in more than 70 years is showing signs of abating. The Commerce Department on Aug. 26 may report that purchases of new houses rose 1.6 percent in July to 390,000, the highest level since November, according to the Bloomberg survey.

A measure of home prices is projected to fall at a slower pace. The S&P/Case-Shiller index of property values in 20 U.S. metropolitan areas was probably down 16.5 percent in June from a year earlier, the smallest decline in almost a year, the survey showed. The report is due on Aug. 25.

Last week the National Association of Realtors said purchases of existing homes jumped 7.2 percent in July to an annual pace of 5.24 million, the highest level in almost two years.

The government’s revised figures for second-quarter gross domestic product, due on Aug. 27, may show the economy contracted at a 1.4 percent annual rate, compared with the 1 percent estimated last month, according to the survey median. The revision will stem from even bigger declines in inventories than initially anticipated, economists said, which set the stage for a boost in production when sales stabilize.

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