U.S. Economy: Consumer Spending Cools More Than Estimated
U.S. Economy Expanded 1.8% in First Quarter
Matthew Staver/Bloomberg
Consumer purchases fell short of forecasts, reflecting a smaller rise in spending on autos and utilities.
Consumer purchases fell short of forecasts, reflecting a smaller rise in spending on autos and utilities. Photographer: Matthew Staver/Bloomberg
May 26 (Bloomberg) -- Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC, talks about the outlook for the U.S. economy. Data today show the economy grew at a slower rate than forecast as consumer spending cooled and initial jobless claims unexpectedly rose. Lebas speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)
May 26 (Bloomberg) -- Applications for unemployment benefits in the U.S. increased by 10,000 to 424,000 in the week ended May 21, Labor Department figures showed today in Washington. Separately, the U.S. economy grew at a 1.8 percent annual rate in the first quarter, less than forecast, according to the Commerce Department. Betty Liu and Michael McKee report on the data on Bloomberg Television's "In the Loop." (Source: Bloomberg)
Consumer spending cooled in the first quarter more than previously estimated as the jump in food and fuel costs held back the biggest part of the U.S. economy.
Household purchases rose at a 2.2 percent annual pace from January through March, less than the 2.7 percent calculated last month and short of the 2.8 percent median forecast of economists surveyed by Bloomberg News, according to Commerce Department figures issued today in Washington. The economy grew at a 1.8 percent pace last quarter, the same as previously calculated.
Treasury securities climbed as the report, combined with other data showing more Americans unexpectedly filed claims for jobless benefits, raised concern last quarter’s slowdown will persist. Manufacturing, at the forefront of the recovery that began in June 2009, may also cool this quarter amid parts shortages resulting from the disaster in Japan.
“Consumer spending was pretty anemic last quarter, and households are likely to be somewhat restrained going forward,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who had forecast GDP would be revised to 1.9 percent. “Economic growth will run a little faster than the first quarter but nothing blockbuster.”
The number of workers filing applications for unemployment insurance benefits increased by 10,000 to 424,000 in the week ended May 21, according to data from the Labor Department. The median forecast of economists surveyed by Bloomberg projected claims would decrease to 404,000.
Shares Fall
The yield on the benchmark 10-year Treasury note dropped to 3.06 percent at 4:02 p.m. in New York from 3.13 percent late yesterday, and touched the lowest level since Dec. 7. The Standard & Poor’s 500 Index advanced as rising corporate profits at companies like Tiffany & Co. overshadowed the economic data. The gauge rose 0.4 percent to close at 1,325.69.
A monthlong slide in consumer confidence ended last week as gasoline prices retreated, another report showed. The Bloomberg Consumer Comfort Index rose to minus 48.4 in the period to May 22 from a nine-month low of minus 49.4 the prior week. Readings of minus 40 or less are generally associated with recessions and their aftermaths, the report said.
The economy last quarter maintained the previously reported pace of growth as bigger gains in inventories and a smaller decline in commercial construction compensated for the slowdown in spending.
The median forecast of 82 economists surveyed by Bloomberg projected GDP would be revised up to 2.2 percent. Estimates ranged from 1.6 percent to 2.6 percent.
Second Estimate
The GDP estimate is the second of three for the quarter, with the final release scheduled for June, when more information becomes available.
The gain in consumer purchases, which account for about 70 percent of the economy, followed a 4 percent increase in the fourth quarter was the biggest since the end of 2006. Cuts in spending on gasoline and utilities, combined with a smaller increase in demand for autos, contributed to the slowdown in the first three months of the year.
The price gauge tied to spending increased at a 3.8 percent pace in the first quarter, the biggest advance since the third quarter of 2008. Excluding food and fuel, the numbers tracked by Federal Reserve policy makers, prices climbed at a 1.4 percent rate.
Fed Chairman Ben S. Bernanke has said in recent speeches that the threat from accelerating prices will prove “transitory.” Central bankers are discussing how quickly to begin tightening policy after completing the purchase of $600 billion in U.S. Treasuries by the end of June.
Smaller Wage Gain
The GDP report also showed wages and salaries climbed by $27.9 billion from October through December, down from a prior estimate of $52.5 billion. Real disposable income, or after-tax earnings adjusted for inflation, climbed 1.1 percent in the fourth quarter, rather than the 1.9 percent gain previously estimated. They rose 0.8 percent in the first three months of the year, less than the 2.9 percent prior calculation.
The smaller gain in pay dwarfed the slowdown in spending, pushing the savings rate down to 5.1 percent in the first quarter from a prior estimate of 5.7 percent.
Today’s report also offered a first look at profits. Earnings before taxes were up 1.3 percent from the prior quarter, the smallest gain in more than two years, after rising 2.3 percent in the prior period. They climbed 8.5 percent from the same time last year.
Manufacturing, which accounts for 12 percent of the economy, is slowing this quarter as disruptions in the supply of components temporarily weigh on production until Japanese factories recover from the fallout of the March disaster.
Growth Forecasts
Economists at Goldman Sachs Group Inc. and JPMorgan Chase & Co. in New York each cut second-quarter growth forecasts by half a percentage point this week, citing setbacks in vehicle output caused by supply disruptions. Goldman trimmed its projection to 3 percent, while JPMorgan lowered it to 2.5 percent.
Overseas sales will remain a backstop for factories. Dow Chemical Co. (DOW), the largest U.S. chemical maker, said demand is “strong” in Latin America, Asia and northern and eastern Europe, though it is facing “headwinds” this quarter including adverse weather that probably eroded sales of agriculture products and house paint.
“Demand is still on a steady recovery in the U.S.,” Chief Financial Officer William H. Weideman said May 24 on a webcast presentation. “We are seeing improvements in the business environment, consumer spending and early signs of job creation. Loosening credit conditions and firming exports are also positive signs.”
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 in Washington at cwellisz@bloomberg.net
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