Economy Probably Sped Up as U.S. Consumer Spending Rose Most in Four Years

The economy in the U.S. probably grew at a faster pace in the fourth quarter, driven by the biggest gain in consumer spending in four years, economists projected a report this week will show.

Gross domestic product rose at a 3.5 percent annual pace, up from a 2.6 percent rate in the previous three months, according to the median estimate of 67 economists surveyed by Bloomberg News before a Jan. 28 Commerce Department report. Other data may show business investment remained a pillar of the economic rebound, while home prices decreased.

Ford Motor Co. and Apple Inc. are among companies benefiting from the pickup in household spending that is forecast to extend into 2011 as tax cuts put more money in Americans’ pockets. Federal Reserve policy makers, when they meet this week, may say the improvement in growth isn’t enough to derail a plan to pump more money into financial markets.

“We’ll see a very solid quarter from the consumer,” said Josh Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “Companies have a lot of cash and they are seeing final demand picking up, so we look forward to another solid year in capital spending.”

The GDP estimate is the first of three for the quarter, with the other releases scheduled in February and March when more information becomes available.

Consumer spending, which accounts for about 70 percent of the economy, increased at a 4 percent annual pace, the best showing since the last quarter of 2006, according to the survey median.

Holiday Sales

U.S. retailers’ 2010 holiday sales jumped 5.5 percent for the best performance in five years as shoppers snapped up clothing and jewelry at Macy’s Inc., Tiffany & Co. and other stores, said MasterCard Advisors’ SpendingPulse last month.

Apple posted record quarterly sales as the company sold 7.33 million iPad tablet computers in the first holiday season for the device, the company said last week.

As spending picks up, Ford is among companies planning to increase payrolls this year, pointing to gains in employment that may further accelerate the recovery.

The Dearborn, Michigan-based automaker plans to hire more than 7,000 workers in the next two years, including engineers with expertise in battery-powered cars, Mark Truby, a company spokesman, said in an interview in Detroit on Jan. 10.

President Barack Obama’s extension last month of Bush-era tax cuts, renewal of emergency jobless benefits for the long- term unemployed and cuts to payroll taxes of 2 percentage points prompted economists such as Richard Berner at Morgan Stanley to raise forecasts for this quarter and for 2011.

Investment, Exports

The measures also allowed firms to depreciate 100 percent of capital expenditures over the course of 2011. Together with rising exports to China and other markets, that will help sustain equipment demand, which has fueled the factory-led recovery from the recession that ended in June 2009.

Orders for durable goods rose 1.5 percent in December after a 0.3 percent decline the prior month, economists forecast the Commerce Department will report Jan. 27.

The U.S. administration highlighted export deals with China worth $45 billion during talks with visiting President Hu Jintao last week, including purchases of General Electric Co. locomotives. Other agreements were announced with Caterpillar Inc., Cummins Inc., Westinghouse Electric Corp., Honeywell International Inc. and Alcoa Inc.

“We want to sell you all kinds of stuff,” Obama said to Hu during a joint news conference Jan. 20 at the White House. “We want to sell you planes, we want to sell you cars, we want to sell you software.”

Industrial Stocks

Shares of machinery makers have outpaced the broader market since the Fed announced another round of unconventional easing on Nov. 3. The Standard & Poor’s Supercomposite Machinery Index has climbed 14 percent compared with a 7.5 percent increase for the S&P 500 Index.

Fed policy makers, in two days of meetings beginning Jan. 25, are likely to say the economy has picked up, while reiterating a plan to buy $600 billion in assets through June to spur growth further and cut unemployment.

Housing continues to struggle as foreclosures mount. Home prices in 20 cities for the 12 months through November fell 1.7 percent, the biggest decline since December 2009, according to the Bloomberg survey. The S&P/Case-Shiller index is due Jan. 25.

Sales of new homes, due Jan. 26 from the Commerce Department, rose 3.5 percent to a 300,000 annual pace in December, according to economists surveyed by Bloomberg News. That’s still close to the record low of 274,000 reached in August.

Home Sales

Pending home sales, or contract signings for existing homes, rose 0.9 percent in December, after a 3.5 percent gain the prior month, economists forecast the National Association of Realtors will report on Jan. 27.

Rising fuel prices, falling home values, and higher stock values are providing cross currents for measures of consumer attitudes.

The Thomson Reuters/University of Michigan’s final sentiment index for January, due Jan. 28, is projected to fall to 73 from 74.5 at the end of December, according to economists surveyed. The New York-based Conference Board on Jan. 25 may show its confidence gauge climbed to 54.2 from 52.5 last month.

                        Bloomberg Survey

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                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
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Case Shiller Monthly MO   1/25      Nov.     -1.0%     -0.9%
Case Shiller Monthly YO   1/25      Nov.     -0.8%     -1.7%
Case Shiller Monthly In   1/25      Nov.     145.3     143.9
Consumer Conf Index       1/25      Jan.      52.5      54.2
New Home Sales ,000’s     1/26      Dec.      290       300
New Home Sales MOM%       1/26      Dec.      5.5%      3.5%
Durables Orders MOM%      1/27      Dec.     -0.3%      1.5%
Durables Ex-Trans MOM%    1/27      Dec.      3.6%      0.9%
Cap Goods Core MOM%       1/27      Dec.      2.6%      1.7%
Initial Claims ,000’s     1/27     22-Jan     404       409
Cont. Claims ,000’s       1/27     15-Jan     3861      3880
Pending Homes MOM%        1/27      Dec.      3.5%      0.9%
GDP Annual QOQ%           1/28      4Q A      2.6%      3.5%
Personal Consump. QOQ%    1/28      4Q A      2.4%      4.0%
GDP Prices QOQ%           1/28      4Q A      2.1%      1.7%
Core PCE Prices QOQ%      1/28      4Q A      0.5%      0.4%
Employ Costs QOQ%         1/28       4Q       0.4%      0.5%
U of Mich Conf. Index     1/28     Jan. F     74.5      73.0
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To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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

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