Consumer Spending in U.S. Probably Cooled in January as Gas Prices Climbed
Consumer spending in the U.S. probably rose at a slower pace in January as food and fuel prices climbed, economists said before a report today.
Americans’ purchases, which account for about 70 percent of the economy, rose 0.4 percent after a 0.7 percent gain in December, according to the median estimate of 59 economists surveyed by Bloomberg News. Other figures may show manufacturing continued to expand and home sales dropped.
While tax cuts and rising confidence in the recovery indicate households will keep shopping, purchases may be tempered by higher gasoline costs and 9 percent unemployment. After adjusting for changes in prices, the data may indicate the economy will get less of a boost from Americans’ spending in the first quarter than the prior three months.
“We’ll see modest gains in spending this quarter,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston. “Rising prices imparted a strong bite on real consumer spending. Acceleration in consumption and in the economy may become more of a challenge.”
The Commerce Department’s spending report is due at 8:30 a.m. in Washington. Economists’ forecasts ranged from gains of 0.2 percent to 1.1 percent.
The report may also show a fourth-straight gain in incomes and that inflation held below the Federal Reserve’s long-term forecast. Personal income rose 0.4 percent in January for a third month, according to the Bloomberg survey. The central bank’s preferred price index, which is tied to spending patterns and excludes food and fuel, increased 0.8 percent from January 2010, according to the survey.
Chicago Purchasers
At 9:45 a.m., data from the Institute for Supply Management-Chicago Inc. may show businesses expanded in February at close to the fastest pace in two decades. The group’s business barometer fell to 67.5 this month from 68.8 in January, the highest level since July 1988, according to the Bloomberg survey median. Readings greater than 50 signal expansion.
Fewer Americans signed contracts to buy previously owned homes in January, the National Association of Realtors may report at 10 a.m. The index of pending home resales fell 2.3 percent, according to the Bloomberg survey median, indicating the industry that triggered the worst recession since the 1930s will take time to recover.
The economy grew at a 2.8 percent annual rate in the fourth quarter, slower than previously calculated, as state and local governments made deeper cuts in spending, Commerce Department figures showed on Feb. 25. Consumer purchases rose at a 4.1 percent pace, the most since the same three months in 2006, compared with a 4.4 percent rate originally estimated.
Food and Fuel
Rising food and fuel costs may strain household budgets, at the same time higher commodity costs risk prompting companies to raise prices to protect profits. Oil topped $100 a barrel last week amid unrest in the Middle East. Regular fuel, which in January was higher than the December average, jumped to $3.29 a gallon last week, the costliest since 2008, according to AAA, the nation’s biggest motoring organization.
Price gains are masking the lack of momentum in real consumer spending, some reports show. Retail sales dropped last month after adjusting for inflation, according to figures from the Federal Reserve Bank of St. Louis. The hit to retail sales, which account for about 40 percent of household purchases, signals American consumers may be scaling back early this year.
The Standard & Poor’s Supercomposite Retailing Index has gained 0.7 percent so far this year, while the broader S&P 500 advanced 5 percent through Feb. 25.
Tax Benefits
Households may find some relief due to tax benefits including a reduction in payroll taxes of 2 percentage points, the extension in December of President George W. Bush’s tax cuts, and renewal of emergency jobless benefits for the long- term unemployed. Stock market gains have also helped repair consumer finances.
Americans’ confidence increased in February to the highest level in three years, the Thomson Reuters/University of Michigan final index of sentiment showed last week. The Bloomberg Consumer Comfort Index, formerly the ABC News U.S. Weekly Consumer Comfort Index, climbed in the week ended Feb. 18 to the highest level since April 2008 as Americans grew less pessimistic about their finances.
Target Corp., the second-largest U.S. discount retailer, projected sales at stores open at least a year may rise as much as 5 percent this year, after a 2.1 percent gain the prior period. In the fourth quarter ended Jan. 29, sales showed surprising strength at times, followed by unexpected weakness, executives said.
“Consumer optimism is once again increasing,” Kathryn Tesija, executive vice president of merchandising, said on a conference call with investors on Feb. 24. Even so, customers are “focused on controlling household budgets, leading to increased coupon use and a focus on promotions.”
Bloomberg Survey
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Pers Pers Chicago Pending
Inc Spend PM Homes
MOM% MOM% Index MOM%
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Date of Release 02/28 02/28 02/28 02/28
Observation Period Jan. Jan. Feb. Jan.
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Median 0.4% 0.4% 67.5 -2.3%
Average 0.6% 0.4% 67.2 -2.3%
High Forecast 1.7% 1.1% 70.9 1.5%
Low Forecast 0.1% 0.2% 60.0 -6.0%
Number of Participants 54 59 42 29
Previous 0.4% 0.7% 68.8 2.0%
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4CAST Ltd. 0.3% 0.4% 68.0 -5.0%
ABN Amro Inc. --- 0.5% 67.5 -2.0%
Action Economics 0.9% 0.4% 67.0 -2.3%
Aletti Gestielle 0.6% 0.4% 67.5 ---
Ameriprise Financial 0.3% 0.3% 67.0 -2.9%
Banesto 0.5% 0.4% 67.4 -1.1%
Bank of Tokyo- Mitsubishi 0.4% 0.4% 70.9 ---
Barclays Capital 0.4% 0.5% 68.0 -2.0%
Bayerische Landesbank 0.6% 0.3% --- ---
BMO Capital Markets 0.4% 0.4% 67.5 -3.0%
BNP Paribas 1.2% 0.3% 66.5 ---
Capital Economics 0.4% 0.3% --- -1.0%
CIBC World Markets 0.4% 0.5% --- ---
Citi 1.5% 0.5% 65.0 ---
Commerzbank AG 0.3% 0.4% 67.0 1.0%
Credit Agricole CIB 0.4% 0.4% 68.8 ---
Credit Suisse 1.2% 0.5% 66.0 ---
Danske Bank 0.4% 0.3% 68.2 ---
DekaBank 0.5% 0.5% 67.0 1.5%
Deutsche Bank Securities 0.3% 0.4% 68.0 1.0%
Deutsche Postbank AG --- 0.4% --- ---
Exane --- 0.4% 65.0 -2.3%
First Trust Advisors 0.3% 0.4% 70.3 ---
Helaba 0.3% 0.4% 66.0 ---
Hugh Johnson Advisors 0.4% 0.4% 67.0 ---
IDEAglobal 0.4% 0.4% 68.0 0.8%
IHS Global Insight 1.1% 1.1% --- ---
Informa Global Markets 0.7% 0.2% 67.8 -2.0%
ING Financial Markets 0.4% 0.5% 69.0 -2.9%
Insight Economics 0.2% 0.4% 67.5 -1.0%
Intesa-SanPaulo 0.7% 0.4% 67.5 ---
Janney Montgomery Scott 0.1% 0.4% --- -3.5%
Jefferies & Co. --- --- 64.0 ---
Landesbank Berlin 0.2% 0.4% 66.5 ---
Landesbank BW 0.4% 0.3% 66.8 -3.5%
MET Capital Advisors --- 0.3% --- ---
Moody’s Analytics 1.2% 0.4% 67.3 -3.0%
Morgan Keegan & Co. 1.7% 0.3% --- ---
Morgan Stanley & Co. 1.0% 0.4% --- ---
Natixis 0.4% 0.4% --- ---
Newedge 0.4% 0.3% 67.8 ---
Nomura Securities Intl. 1.2% 0.3% 66.8 ---
Nord/LB 0.4% 0.3% 66.0 ---
Pierpont Securities LLC 0.8% 0.3% --- ---
PNC Bank 0.7% 0.3% --- ---
Raiffeisenbank International 0.2% 0.4% --- ---
Raymond James 0.3% 0.4% --- ---
RBC Capital Markets 1.3% 0.5% 70.0 -4.0%
Scotia Capital 0.2% 0.4% --- -2.0%
Societe Generale 0.4% 0.3% 68.9 -1.7%
Standard Chartered 0.4% 0.3% --- -2.0%
State Street Global Markets 0.8% 0.4% 67.1 -4.0%
Stone & McCarthy Research 0.2% 0.2% 69.6 ---
TD Securities 0.3% 0.5% 69.0 -5.0%
Union Investment 0.4% 0.4% --- ---
University of Maryland 0.4% 0.4% 68.0 -0.7%
Wells Fargo & Co. 1.4% 0.2% --- ---
WestLB AG 0.5% 0.4% 65.0 -2.5%
Westpac Banking Co. 0.4% 0.3% 60.0 -5.0%
Wrightson ICAP --- 0.3% 65.0 -6.0%
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To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
Consumer Spending in U.S. Probably Cooled as Prices Climbed
Daniel Acker/Bloomberg
The hit to retail sales, which account for about 40 percent of household purchases, signals American consumers may be scaling back early this year.
The hit to retail sales, which account for about 40 percent of household purchases, signals American consumers may be scaling back early this year. Photographer: Daniel Acker/Bloomberg
Feb. 25 (Bloomberg) -- Brian Nagel, an analyst at Oppenheimer & Co., talks about U.S. consumers' ability to absorb higher gasoline prices as costs for the fuel rise on political unrest in the Middle East and North Africa. Nagel speaks with Betty Liu, Dominic Chu and Sara Eisen on Bloomberg Television's "In the Loop." (Source: Bloomberg)
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