‘Clunkers’ Probably Boosted Retail Sales: U.S. Economy Preview

‘Clunkers’ Probably Boosted Retail Sales: U.S. Economy Preview


Sept. 13 (Bloomberg) -- The U.S. government’s auto trade- in program probably lifted retail sales in August to their biggest gain in more than three years and boosted factory output, economists said before reports this week.

Total purchases climbed 1.9 percent, the most since January 2006, according to the median of 60 estimates in a Bloomberg News survey ahead of Commerce Department figures due Sept. 15. The Obama administration’s “cash for clunkers” plan also helped industrial production in August to its first back- to-back monthly increase since 2007, economists said.

Americans flocked to auto showrooms last month to take advantage of the incentive program while purchases of other items were subdued even as evidence mounts that the worst recession since the Great Depression is ending. With unemployment forecast to reach 10 percent by the end of the year, consumer spending likely won’t lead the recovery.

“When you get to the fourth quarter, the blip from cash- for-clunkers falls out,” said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “The production recession is over and the housing recession is over. When you combine those two, they add up to a fair amount of traction in the overall economy.”

Excluding automobiles, retail sales probably rose 0.4 percent, economists said.

The recession “has brought on a new focus on frugality,” Mike Duke, chief executive officer for Wal-Mart Stores Inc., said last week at a conference in New York. “Clearly customers are watching every penny.” The world’s largest retailer is offering discounts to attract shoppers, Duke said.

Beige Book

In the Federal Reserve’s Beige Book business survey, published two weeks before officials meet to set monetary policy, the central bank reported “flat” retail sales in July and August and cited some auto-industry contacts as saying the cash-for-clunkers effect may be temporary. Factories, meanwhile, showed “modest improvements” in most regions, the Fed said.

The auto plan, which ended Aug. 24, offered buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles. The program produced almost 700,000 purchases, the Transportation Department said.

Cars and light trucks sold at a 14.1 million annual pace last month, up 25 percent from July, according to industry figures. It was the biggest gain since October 2001.

Industrial Production

Last month General Motors Co. called back 1,350 union workers, its biggest one-time increase in jobs since 2006, as it ramped up second-half production in part to meet demand linked to the government trade-in program.

The Fed’s measure of production, due Sept. 16, probably rose 0.6 percent, the most since October, according to the survey. The report may also show the proportion of plant capacity in use in the U.S. climbed to 69.1 percent, the highest in five months.

Manufacturing in the New York region posted its first back-to-back monthly expansion since January 2008, economists said before a report due Sept. 15. The New York Fed’s general economic index likely climbed to 15 this month from 12.1 in August, according to the survey.

The housing market also is showing early signs of a rebound. A Commerce Department report due Sept. 17 will show builders broke ground on 600,000 new homes last month at an annual rate, a 3.3 percent gain and the fastest pace since November, according to the survey median.

The Standard & Poor’s homebuilder supercomposite index has gained 35 percent since the beginning of the year, compared with 15 percent for the broader S&P 500 index.

‘Ups and Downs’

With the jobless rate at a 26-year high and 6.9 million job losses since the recession began in December 2007, policy makers are trying to temper expectations for a robust economic turnaround. Treasury Secretary Timothy Geithner last week said the government is moving to withdraw some of its support for financial markets, while cautioning that the recovery will have “more than the usual ups and downs.”

The economy will expand at a 2.9 percent annual rate in the July-through-September period, according to the median of 61 estimates in a monthly Bloomberg News survey. Growth is projected to slow to a 2.2 percent pace during the last three months of the year.

The world’s largest economy contracted 1 percent in the second quarter, the Commerce Department said last month, the fourth straight quarterly drop. That made the downturn the longest contraction since such records began in 1947.

The cost of living probably rose 0.3 percent in August from July as energy costs rose, after remaining unchanged the prior month, according to the survey. The Labor Department’s report on the consumer price index is due Sept. 16.

bloomberg