Outlook for U.S. Consumer Spending Raised on Jobs, Survey Says

Outlook for U.S. Consumer Spending Raised on Jobs, Survey Says


May 11 (Bloomberg) -- The U.S. economic recovery is taking on a life of its own as more jobs, rising wealth and easier credit give Americans the means to keep spending, according to economists surveyed by Bloomberg News.

Consumer purchases will grow at a 3 percent annual pace in the second quarter, according to the median estimate of 61 economists surveyed from April 29 to May 10, up from the 2.5 percent clip projected last month. The economic growth outlook for the quarter and the rest of the year also brightened.

The strongest employment gain in four years signals the world’s largest economy is evolving away from dependence on government stimulus toward an enduring rebound, making it more resilient to shocks like the European debt crisis. A lack of inflation and the risks to financial markets posed by growing government debt here and abroad means the Federal Reserve will be slower to raise interest rates than previously thought.

“Everything is cranking up a notch,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts, who raised forecasts for spending and growth. “Once recoveries build up a head of steam, they tend to become much more self-sustaining.”

Payrolls climbed by 290,000 workers in April, the most in four years, and the unemployment rate unexpectedly rose to 9.9 percent as thousands of job seekers entered the labor force looking for work. Private payrolls rose by 231,000, and factory employment climbed by 44,000, the most since 1998.

Unemployment Forecast

Unemployment will end the year at 9.4 percent, according to the survey median, the same as forecast a month ago.

Economists raised consumer spending forecasts for the entire survey horizon, spanning through 2012. Household purchases, which account for about 70 percent of the economy, will grow 2.6 percent this year, the most since 2007, the survey showed. Purchases dropped 0.6 percent in 2009 and 0.2 percent in 2008, the first back-to-back decline since the 1930s.

“The consumer is back in the game and employment growth is going to be strong this year,” said Kurt Karl, chief U.S. economist at Swiss Reinsurance Co. in New York.

The 71 percent rebound in the Standard & Poor’s 500 Index from a 12-year low reached in March 2009, and a firming in home values are helping improve the spending outlook, economists said. Also, 14 percent of banks surveyed last quarter said they were willing to extend consumer installment loans though instruments such as credit cards, according to a Fed data, the most in four years.

MasterCard Inc., the world’s second-biggest electronic payments network, posted a first-quarter profit that beat most analysts’ estimates as it held down costs and spending rebounded.

‘Self-Sustaining’

“The global economy has reached a self-sustaining momentum,” Chief Executive Officer Robert W. Selander said last week in a conference call with analysts.

Stocks rallied around the world yesterday, sending the MSCI World Index up the most in 13 months, after the 16 euro nations agreed to lend as much as 750 billion euros ($962 billion) to the most indebted countries to avert spillover from the Greek debt crisis. The Standard & Poor’s 500 Index surged 4.4 points, erasing almost two-thirds of last week’s 6.4 percent plunge.

The improved outlook for consumers will probably boost growth. Economists raised their forecasts for the gain in gross domestic product this year to 3.2 percent from 3 percent a month ago.

Preferred Gauge

The central bank’s preferred price gauge, which tracks consumer spending and excludes food and fuel costs, will rise 1.2 percent this year, the smallest gain since 1962, according to this month’s survey median.

The lack of inflation and the European crisis may spur the Fed to be more cautious in raising the target rate for overnight loans between banks from its current range of zero to 0.25 percent, economists said this month. The rate will rise to 0.5 percent by December, down from an earlier forecast of 0.75 percentage point, according to the survey median forecast.

“The fiscal tightening implicit to the remedy for sovereign debt concerns ought to help keep inflation risks well contained and moderate the Fed’s early steps toward normalizing monetary policy,” said John Lonski, chief economist at Moody’s Capital Markets Group in New York, who was among those lowering Fed interest-rate forecasts. “It will help convince the Fed of the need to proceed more cautiously with rate hikes.”

The recovery is “likely to be moderate for a time,” central bankers said in their latest policy statement on April 28 as they reiterated a commitment to keep the benchmark lending rate low “for an extended period.”

source: bloomberg.com