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By Carlos Torres
June 30 (Bloomberg) -- U.S. personal spending probably rose in May at the slowest pace in four months, as consumers bought fewer automobiles, and cool weather restrained purchases of summer clothing, according to economists surveyed before a government report today.
The Commerce Department is expected to report a 0.1 percent rise, the smallest increase since January, according to the median of 69 estimates in a survey by Bloomberg News. Spending rose 0.6 percent in April. Incomes probably increased 0.3 percent after a 0.7 percent gain.
Retail surveys this month point to a rebound in clothing sales as the weather turned more seasonable. Auto purchases probably also picked up, suggesting consumers are overcoming near- record gasoline prices. Federal Reserve policy makers today are expected to raise their target rate for a ninth straight time to keep inflation from accelerating as the economy grows.
``Strong growth in personal income, together with positive wealth gains related to housing, has helped to keep consumers in a spending mood,'' said Joseph Abate, a senior economist at Lehman Brothers Inc. in New York.
The spending and income data are scheduled for release at 8:30 a.m. in Washington. Economists' estimates for spending ranged from a decline of 0.2 percent to a 0.4 percent gain.
Also at 8:30 a.m., the Labor Department is forecast to report initial jobless claims rose to 325,000 last week from 314,000. The levels are consistent with improvement in the labor market that's helping underpin sales, economists said.
Retail sales, which account for about half of all consumer spending, fell 0.5 percent in May, the first decline since August, as Americans bought fewer cars and clothing, the Commerce Department reported earlier this month.
Manufacturing
Weakness in auto sales probably limited manufacturing in the Chicago area, an industry report is forecast to show today at 10 a.m. The National Association for Supply Management-Chicago is forecast to report its gauge of business in the area slipped to 54 in June, a two-year low, from 54.1 a month earlier, according to the median forecast in a Bloomberg survey.
``We've had five months where every other month has either been wonderful or terrible in terms of the data flow, but it has strung together pretty well,'' said Steven Wieting, director of economic and market analysis at Citigroup Global Markets Inc. in New York. Wieting said, ``the second quarter at the moment looks a little bit light compared to the first quarter,'' which grew 3.8 percent at an annual rate, according to government figures yesterday.
This month, spending has accelerated as the weather warmed. Same-store sales at U.S. retailers probably rose 4.5 percent from the same month last year, compared with a previous estimate of as much as 4 percent, according to a forecast by Michael Niemira, chief economist at the International Council of Shopping Centers.
June Auto Sales
Wal-Mart Stores Inc., the world's largest retailer, said June 25 that sales at its U.S. stores open at least a year are rising within its forecast range of 2 percent to 4 percent after a 2.5 percent increase in May. Target Corp., the second-largest U.S. discount retailer, earlier this month said it expects June sales will exceed its forecast of a 4 percent to 6 percent gain.
Auto sales this month probably also picked up as General Motors Corp. boosted incentives. Sales improved to a 17 million annual pace, the second highest so far this year, from 16.7 million in April, according to the median estimate of economists surveyed by Bloomberg News.
Some General Motors dealers this month said sales were up 20 percent to 50 percent compared with June 2004 after the Detroit- based automaker offered employee discounts to all U.S. buyers.
Second Quarter
``June is shaping up for a vigorous rebound'' in consumer spending, said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. ``A new round of incentives by GM have evidently been successful in generating a boost in sales, and warm weather has produced firm results for chain stores.''
Consumption may rise at a 3.8 percent annual rate from April through June, faster than a previous forecast of 3.1 percent, according to economists at Morgan Stanley.
Spending probably rose at a 3.2 percent pace this quarter after growing 3.6 percent the previous three months, according to the median estimate of economists surveyed by Bloomberg News from May 31 to June 8.
Investors are likely to focus as well on the Commerce report's price measures, economists said. The Fed uses these gauges to help decide whether to raise interest rates. The central bank earlier this year projected the price index, excluding volatile food and energy prices, would rise 1 percent to 2 percent this year.
Prices
The measure in May probably rose 0.1 percent, bringing the increase over the last 12 months to 1.7 percent, the upper end of the Fed's expected range, according to the median estimate of economists surveyed.
The year-over-year increase in prices is likely to approach 2 percent by the end of September, according to Stanley. ``This is one of the critical reasons'' why the Fed will probably keep raising its interest-rate target in coming months, Stanley said.
Central bankers are expected to raise the benchmark target interest rate by a quarter percentage point to 3.25 percent at the conclusion of their two-day meeting today.
The jump in crude oil prices this month to a record near $61 a barrel will probably lead to higher gasoline prices in coming months, and is one reason why consumer spending and the economy are likely to slow in the second half of the year, according to economists such as David Rosenberg.
$60 a Barrel
``Oil around $60/barrel is a drain on consumer spending and a squeeze on corporate profit margins,'' said Rosenberg, chief North American economist at Merrill Lynch & Co., in a report to clients. The economy will probably grow at a 2.9 percent pace in the last six months of 2005, he said.
Airlines are among the companies feeling the pinch.
``Energy prices are driving everything right now,'' Gary Kelly, chief executive of Southwest Airlines Co. said in an interview June 24. Fares have yet to return to the levels seen before the terrorist attacks on September 2001, ``and we have a whole new ballgame with these high energy prices,'' he said.
Southwest Airlines was the only major U.S. carrier to remain profitable since 2001 and Kelly said rising fuel prices and low fares will prolong losses in the industry in this year's second half.
Bloomberg Survey
FIRM Personal Personal Jobless Chicago
Income Spending Claims PM
------------------------------------------------------------
Number of replies 65 69 37 56
MEDIAN 0.3% 0.1% 325 54.0
AVERAGE 0.3% 0.1% 325 54.1
High Forecast 0.6% 0.4% 335 60.5
Low Forecast 0.0% -0.2% 310 50.0
Previous 0.7% 0.6% 314 54.1
------------------------------------------------------------
ABN Amro 0.3% 0.3% n/a 56.0
4CAST Ltd. 0.4% 0.1% 320 55.0
Action Economics 0.3% 0.0% 330 55.0
AIG Global Invest. 0.4% -0.2% n/a n/a
AIB Global Treasury 0.3% 0.1% 325 53.0
Alleti Gestielle SGR 0.2% 0.0% 323 54.8
Argus Research Corp. 0.6% 0.4% n/a 53.0
BNP Paribas 0.4% 0.0% 321 56.0
B of A Capital 0.4% 0.1% 333 57.0
B of A Securities 0.3% -0.1% n/a 56.0
Bantleon Bank AG n/a 0.0% n/a 52.0
Barclays Capital 0.3% 0.1% 325 53.5
Bayerische Landesbank 0.3% 0.1% n/a n/a
Bear Stearns 0.4% 0.0% n/a 54.5
Bank of Tokyo- Mitsub. 0.3% 0.1% 325 54.5
Briefing.com 0.4% 0.1% 330 56.0
CantorViewpoint 0.4% 0.1% 323 53.7
CIBC World Markets 0.4% 0.1% n/a n/a
Citigroup 0.3% 0.0% n/a 60.5
Claymore Advisors 0.6% 0.0% 316 54.0
ClearView Economics 0.3% 0.0% n/a n/a
Commerzbank 0.3% 0.1% 325 54.0
Credit Agricole 0.3% -0.1% n/a 52.0
Credit Suisse FB 0.5% 0.0% 320 52.0
Danske Bank n/a n/a n/a 51.0
DekaBank 0.4% 0.0% n/a 54.7
Desjardins Group 0.2% 0.0% 316 53.5
Deutsche Bank Research 0.3% 0.2% 325 52.0
Deutsche PostBank n/a 0.0% n/a n/a
Dresdner Kleinwort 0.4% 0.1% n/a 53.0
Exane 0.3% 0.1% 330 52.0
Fortis Bank NV n/a 0.0% n/a 60.0
Global Insight 0.4% 0.0% n/a n/a
Goldman Sachs 0.5% 0.3% n/a 52.5
High Frequency Economics 0.4% 0.1% 325 52.0
HSBC Markets 0.4% 0.2% 330 53.0
HypoVereinsbank 0.3% 0.1% 330 n/a
I.D.E.A. 0.3% 0.1% 320 54.0
ING Financial Markets 0.5% 0.2% n/a 57.0
Informa Global Markets 0.4% 0.3% 333 55.5
Insight Economics 0.3% 0.2% 330 55.0
IntesaBci 0.3% 0.1% n/a 51.0
J.P. Morgan 0.4% 0.1% n/a 53.0
JPMorgan Asset Mg 0.3% 0.1% 320 53.0
Lehman Brothers 0.3% 0.0% 325 52.5
Macroeconomic 0.3% 0.0% 320 n/a
Merrill Lynch 0.2% 0.1% n/a 50.0
Mizuho Securities 0.3% 0.2% 320 55.0
Morgan Keegan 0.3% 0.1% n/a n/a
Morgan Stanley 0.4% -0.1% n/a n/a
National Bank Financial 0.2% 0.0% n/a n/a
National City Bank 0.0% 0.0% n/a 55.3
Nesbitt Burns BMO 0.5% 0.0% 320 54.0
Nomura 0.3% 0.1% n/a n/a
Nord/LB 0.5% 0.3% 310 57.0
PNC Bank 0.4% 0.1% n/a n/a
Prebon Marshall 0.4% 0.0% 330 51.5
RBS Greenwich Capital 0.4% 0.0% n/a n/a
Ried, Thunberg & Co. n/a 0.0% 335 54.0
Siemens Financial n/a n/a n/a 55.0
Scotia Capital 0.3% 0.1% 325 55.0
Societe Generale 0.5% 0.0% 330 52.0
Stone & McCarthy 0.3% -0.1% n/a 54.5
Thomson/IFR 0.3% 0.0% 310 53.5
UBS Securities LLC 0.4% 0.0% 330 54.0
Ulpia 0.4% 0.2% 333 51.3
Unicredit Banca Mobilare 0.2% 0.1% n/a 55.0
Wells Fargo 0.3% 0.0% n/a 55.0
WestLB AG 0.3% 0.1% n/a n/a
Westpac Banking 0.3% 0.0% 320 55.0
Wrightson 0.3% 0.1% 330 55.0
To contact the report on this story: Carlos Torres in Washington ctorres2@bloomberg.net
Last Updated: June 30, 2005 00:07 EDT
