Consumer, Business Spending Probably Increased as U.S. Economy Accelerated

Spending by U.S. consumers and businesses probably accelerated in November, a signal the economy is speeding up at the end of the year, economists forecast before reports this week.

Household purchases rose 0.5 percent after a 0.4 percent increase in October, according to the median estimate of 62 economists surveyed by Bloomberg News ahead of Dec. 23 figures from the Commerce Department. The same day, another report from the agency may show demand for durable goods excluding cars and aircraft climbed 2 percent.

Fewer firings and rising incomes are boosting consumer confidence, making it more likely spending, which accounts for about 70 percent of the economy, will keep improving. At the same time, factories are ramping up production as gains in exports reinforce growing demand from U.S. companies, pointing to a more balanced and durable recovery.

“We really have started to see improvements in momentum and more broad-based improvements,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “We’re on the precipice of getting to an economy that’s sustainable without Fed stimulus.”

The consumer spending report also will show incomes rose 0.2 percent last month after increasing 0.5 percent in October, according to the survey median.

Improving household balance sheets may be helping boost demand during the Christmas holiday period. The International Council of Shopping Centers on Dec. 14 revised its November- December holiday-season sales forecast up by 0.5 percentage point to a range of 3.5 percent to 4 percent.

‘Great Christmas’

“All the brands around the world are having, so far so good, a very great Christmas,” John Demsey, group president of Estee Lauder Cos., said in a Bloomberg Television interview Dec. 15. “Consumer confidence is up and it’s really about the power of the brands and pent up demand that consumers have.”

Auto dealers also are among retailers seeing improved demand. Car sales in November rose to a 12.26 million unit pace, the highest since the government’s cash-for-clunkers program in August 2009, industry data showed this month. Demand over the past three months is the strongest in two years.

The Commerce Department’s report on durable goods will show total orders fell 0.7 percent, reflecting a drop in aircraft demand. Bookings for business equipment excluding defense and planes, items like computers and machinery, rose 3 percent, according to the Bloomberg survey.

‘Extended’ Gains

“We have seen now an extended period of time of recovery in the components business,” Paul Reilly, chief financial officer of Arrow Electronics Inc., said last week at a conference in New York. Melville, New York-based Arrow is a distributor of electronic components and computer products to industrial customers.

The improving economy has boosted stock prices. The Standard & Poor’s 500 Index has risen 22 percent since reaching a 10-month low on July 2. It is up 5.4 percent so far this month.

The economy grew at a 2.8 percent annual pace in the third quarter, more than the 2.5 percent estimated last month, according to the median forecast of economists surveyed by Bloomberg. The Commerce Department is scheduled to release its second revision for the period on Dec. 22.

Economists in the past two weeks have boosted projections for fourth-quarter growth after the government reported better- than-projected retail sales for November and the Obama administration reached a compromise with congressional Republicans to extend Bush-era tax cuts and introduce new reductions.

Raising Forecasts

JPMorgan Chase & Co. chief U.S. economist Michael Feroli forecast the economy will grow at a 3.5 percent pace from October through December, up from a prior estimate of 2.5 percent.

Housing, the industry that triggered the worst recession in seven decades, is struggling to recover after a homebuyers’ tax credit expired and foreclosures keep adding to inventory.

Sales of new and existing homes increased to a combined 5.05 million annual rate in November from 4.71 million the prior month, according to economists surveyed. Purchases averaged a 5.7 million pace in the first six months of the year when the tax break was in effect, and then slumped to 4.12 million in July, the weakest since comparable records began in 1999.

The National Association of Realtors is scheduled to release figures on existing home sales Dec. 22. Economists surveyed by Bloomberg projected demand for previously owned houses rose 7.2 percent to a 4.75 million rate last month.

The Commerce Department will issue new-home sales data Dec. 23. Purchases climbed 6 percent to a 300,000 pace, according to the Bloomberg survey.

Other reports this week will show initial jobless claims held at 420,000 last week and the Thomson Reuters University of Michigan final index of consumer sentiment for December increased to 74.5, the highest reading in six months, according to the survey median.

                        Bloomberg Survey

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                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
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GDP Annual QOQ%          12/22      3Q T      2.5%      2.8%
Personal Consump. QOQ%   12/22      3QT       2.8%      2.8%
GDP Prices QOQ%          12/22      3Q T      2.3%      2.3%
Core PCE Prices QOQ%     12/22      3Q T      0.8%      0.8%
Exist Homes Mlns         12/22      Nov.      4.43      4.75
Exist Homes MOM%         12/22      Nov.     -2.2%      7.2%
Durables Orders MOM%     12/23      Nov.     -3.4%     -0.7%
Durables Ex-Trans MOM%   12/23      Nov.     -2.7%      2.0%
Cap Goods Core MOM%      12/23      Nov.     -4.3%      3.0%
Pers Inc MOM%            12/23      Nov.      0.5%      0.2%
Pers Spend MOM%          12/23      Nov.      0.4%      0.5%
PCE Deflator YOY%        12/23      Nov.      1.3%      1.1%
Core PCE Prices MOM%     12/23      Nov.      0.0%      0.1%
Core PCE Prices YOY%     12/23      Nov.      0.9%      0.9%
Initial Claims ,000’s    12/23     18-Dec     420       420
U of Mich Conf. Index    12/23     Dec. F     74.2      74.5
New Home Sales ,000’s    12/23      Nov.      283       300
New Home Sales MOM%      12/23      Nov.     -8.1%      6.0%
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==

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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