Consumer Spending Probably Spurred Growth: U.S. Economy Preview

Consumer Spending Probably Spurred Growth: U.S. Economy Preview

April 25 (Bloomberg) -- Consumer spending probably accelerated in the first quarter, shepherding the U.S. expansion into 2010, economists project a report this week will show.

Gross domestic product grew at a 3.4 percent annual pace after increasing at a 5.6 percent rate in the last three months of 2009, according to the median estimate of 67 economists surveyed by Bloomberg News. Household purchases may have climbed by the most in three years.

“Jobs are the critical component of the entire scenario,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “The signs do point to impending employment gains.”

Improving demand boosts the odds the recovery will be self- sustaining, benefiting companies such as Starbucks Corp., as rising sales lead to additional hiring, which in turn fosters even more spending. A lack of inflation gives Federal Reserve policy makers the green light to keep interest rates low when they meet this week to ensure the world’s largest economy continues to grow.

Central bankers will keep the target for the benchmark borrowing cost on overnight loans between banks near zero at the conclusion of their two-day meeting on April 28, economists surveyed forecast.

Fed Chairman Ben S. Bernanke told Congress on April 14 that high unemployment and weak construction were among the “significant restraints” on the pace of growth. At their March 16 meeting, central bankers said economic conditions are likely to warrant “exceptionally low levels of the federal funds rate for an extended period.”

GDP Report

The Commerce Department’s advance estimate of first-quarter GDP is due April 30. The world’s largest economy grew at the fastest pace in six years during the last three months of 2009 after expanding at a 2.2 percent rate in the third quarter.

For all of 2009, the economy shrank 2.4 percent in 2009, the worst single-year performance since 1946.

Consumer spending probably increased at a 3.1 percent annual rate last quarter, almost double the 1.6 percent pace of the previous three months, the GDP report is also projected to show.

Households led the expansion last quarter, taking the baton from gains in production that reflected efforts to stabilize stockpiles. A swing to smaller inventory reductions accounted for 3.8 percentage points of growth in the fourth quarter.

Inventory Boost

That contribution, while diminished, probably continued last quarter as companies boosted stockpiles for the first time in two years, according to economists such as economist Aaron Smith of Moody’s Economy.com.

Inventories climbed 0.5 percent in February, the fourth gain in five months, according to Commerce Department data.

Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, is among those saying more jobs are a necessary component of a sustained recovery. Payrolls rose by 162,000 in March, the most in three years, the Labor Department reported April 2. The unemployment rate was 9.7 percent for a third month and has not increased since reaching a 26-year high of 10.1 percent in October.

Stocks gained in the first quarter of the year on mounting signs the economic recovery was taking hold. The Standard & Poor’s 500 Index climbed 4.9 percent from January through March, and has increased 9.2 percent so far this month.

Households may become more optimistic as the labor market improves. A Conference Board report on April 27 may show its measure of consumer confidence rose this month to 53.5 from 52.5, according to the survey median. The gauge averaged 45 in 2009, and 98 during the economic expansion that ended in December 2007.

‘Little Bit Better’

“We’re benefiting from a consumer who’s feeling just a little bit better,” Troy Alstead, chief financial officer of Starbucks, said in a telephone interview after the Seattle-based company announced earnings on April 21.

Starbucks, the world’s largest coffee-shop operator, raised its annual forecast after reporting second-quarter profit that beat analysts’ estimates. The chain’s sales at stores open at least a year advanced 7 percent in the U.S., driven by a 3 percent increase in the number of customer visits and a 5 percent jump in the amount of the average sale.

Confidence measures may give conflicting signals this month. The Reuters/University of Michigan index of consumer sentiment for April probably fell to 71 from 73.6 the prior month, according to the survey median. The figures are due April 30. A preliminary reading earlier this month came in at 69.5.

Signs of stabilization in the housing market may also help shore up confidence. A report from S&P/Case-Shiller, due April 27, may show home prices in 20 U.S. metropolitan areas increased 1.3 percent in February from a year earlier, the first year- over-year rise since December 2006, according to the survey median.



Bloomberg Survey

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Release Period Prior Median
Indicator Date Value Forecast
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Case Shiller Monthly MO 4/27 Feb. 0.3% -0.2%
Case Shiller Monthly YO 4/27 Feb. -0.7% 1.3%
Case Shiller Monthly In 4/27 Feb. 145.3 144.8
Consumer Conf Index 4/27 April 52.5 53.5
Initial Claims ,000’s 4/29 24-Apr 456 445
Cont. Claims ,000’s 4/29 17-Apr 4646 4613
GDP Annual QOQ% 4/30 4Q A 5.6% 3.4%
Personal Consump. QOQ% 4/30 4Q A 1.6% 3.1%
GDP Prices QOQ% 4/30 4Q A 0.5% 0.9%
Core PCE Prices QOQ% 4/30 4Q A 1.8% 0.5%
Employ Costs QOQ% 4/30 1Q 0.5% 0.5%
Chicago PM Index 4/30 April 58.8 60.0
U of Mich Conf. Index 4/30 April F 69.5 71.0
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source: bloomberg.com