Consumer Spending in U.S. Probably Stagnated in June as Employment Slumped

Photographer: Jim R. Bounds/Bloomberg

The lack of jobs combined with wage gains that have failed to keep pace with inflation raise the risk of further cuts in consumer spending. Close

The lack of jobs combined with wage gains that have failed to keep pace with inflation... Read More

Close
Open
Photographer: Jim R. Bounds/Bloomberg

The lack of jobs combined with wage gains that have failed to keep pace with inflation raise the risk of further cuts in consumer spending.

Consumer spending in the U.S. probably stalled in June as a slump in hiring caused households to retrench, economists said before a report today.

Purchases rose 0.1 percent in June after being little changed in May, according to the median estimate of 77 economists surveyed by Bloomberg News. Personal incomes probably increased 0.2 percent in June, the smallest gain in seven months.

The lack of jobs combined with wage gains that have failed to keep pace with inflation raise the risk of further cuts in consumer spending, which accounts for 70 percent of the world’s largest economy. Companies like Newell Rubbermaid Inc. (NWL) are among those cutting forecasts for the year.

“It’s a challenging situation for consumers,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Job and wage growth is limited, and fuel prices are still higher than people would like. Consumers don’t have the money to buy things.”

The Commerce Department’s spending report is due at 8:30 a.m. in Washington. Economists’ forecasts ranged from a gain of 0.4 percent to a decline of 0.3 percent.

Gross domestic product climbed at a 1.3 percent annual rate from April through June after a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed July 29. Household spending grew 0.1 percent, the weakest performance since the second quarter of 2009, at the end of the last recession.

Photographer: Daniel Acker/Bloomberg

The lack of jobs combined with wage gains that have failed to keep pace with inflation raise the risk of further cuts in consumer spending, which accounts for 70 percent of the world’s largest economy.. Close

The lack of jobs combined with wage gains that have failed to keep pace with inflation... Read More

Close
Open
Photographer: Daniel Acker/Bloomberg

The lack of jobs combined with wage gains that have failed to keep pace with inflation raise the risk of further cuts in consumer spending, which accounts for 70 percent of the world’s largest economy..

Confidence Shaken

A slump in confidence threatens to derail any recovery. The Thomson Reuters/University of Michigan index of consumer sentiment fell in July to the weakest reading since March 2009. The Bloomberg Consumer Comfort Index also dropped in the week ended July 24 to the lowest since May.

“Wages are very stagnant and that’s affecting consumer spending and consumer confidence,” Federal Reserve Chairman Ben S. Bernanke said in semi-annual testimony to Congress on July 13. “There is also ongoing uncertainty about the durability of the recovery.”

Weekly earnings adjusted for inflation dropped 0.9 percent in the 12 months ended June on average, according to figures from the Labor Department.

Investors are cautious about the outlook. The Standard & Poor’s 500 Index dropped for a sixth straight day yesterday as concern the global economy may relapse into another recession wiped out optimism U.S. lawmakers will agree to raise the debt ceiling.

Hiring Stalls

The labor market is still struggling to heal. The jobless rate climbed to 9.2 percent in June, while payrolls grew by 18,000, the fewest in nine months. The economy also failed to create enough jobs in July to trim unemployment, economists in a Bloomberg survey said before a Labor Department report due this week.

Merck & Co., Cisco Systems Inc., and Goldman Sachs Group Inc. are among companies that announced workforce reduction plans last month.

Higher expenses for necessities like energy are also crimping purchasing power. The cost of regular gasoline climbed in May to about a three-year high of $4 a gallon, and remained above $3.70 at the end of July, according to AAA, the nation’s biggest auto group.

The “difficult” U.S. economy was among reasons Newell Rubbermaid, the Atlanta-based maker of Rubbermaid containers and Sharpie pens, last week cut its full-year profit and sales forecasts.

Consumer Outlook

“The consumer environment remains very tough,” Michael Polk, chief executive officer, said on a conference call with analysts on July 29. “The key uncertainty is whether the consumer will show up and spend.”

Auto dealers are also seeing a slump. Cars and light trucks sold at an average 11.41 annual rate in June, the slowest in a year, industry data showed. Figures for July, due today, will signal vehicle sales have stalled, according to a Bloomberg survey.

Today’s spending report may also show the Fed’s preferred price index, which is tied to spending patterns and excludes food and fuel, increased 1.4 percent from June 2010, the most in a year, according to the survey. Policy makers aim for long-run overall inflation of 1.7 percent to 2 percent.

                        Bloomberg Survey

==============================================================
                              Pers     Pers Core PCE Core PCE
                               Inc    Spend   Prices   Prices
                              MOM%     MOM%     MOM%     YOY%
==============================================================

Date of Release              08/02    08/02    08/02    08/02
Observation Period            June     June     June     June
--------------------------------------------------------------
Median                        0.2%     0.1%     0.2%     1.4%
Average                       0.2%     0.1%     0.2%     1.4%
High Forecast                 0.4%     0.4%     0.3%     1.5%
Low Forecast                 -0.2%    -0.3%    -0.1%     1.3%
Number of Participants          73       77       49       27
Previous                      0.3%     0.0%     0.3%     1.2%
--------------------------------------------------------------
4CAST                         0.1%     0.2%     0.2%     ---
ABN Amro                      ---      0.1%     ---      ---
Action Economics              0.2%     0.2%     0.2%     ---
Aletti Gestielle              0.4%     0.2%     0.1%     1.3%
Ameriprise Financial          0.2%     0.2%     0.2%     ---
Banesto                       0.2%     0.2%     ---      ---
Barclays Capital              0.1%     0.1%     0.2%     1.4%
Bayerische Landesbank         0.1%     0.2%     ---      ---
BBVA                          0.1%     0.2%     0.1%     1.4%
BMO Capital Markets           0.2%     0.2%     0.2%     1.4%
BNP Paribas                   0.1%     0.0%     ---      ---
BofA Merrill Lynch            0.1%     0.3%     0.2%     ---
Briefing.com                  0.0%    -0.2%     0.3%     ---
Capital Economics             0.2%     0.0%     0.3%     1.4%
CIBC World Markets            0.1%     0.2%     ---      1.4%
Citi                          0.1%     0.0%     0.2%     1.4%
ClearView Economics           0.2%     0.1%     0.2%     ---
Commerzbank AG                0.3%     0.0%     0.0%     1.4%
Credit Agricole CIB           0.2%     0.1%     0.2%     ---
Credit Suisse                 0.0%    -0.1%     ---      ---
Daiwa Securities America      0.2%     0.1%     0.2%     ---
DekaBank                      0.2%     0.1%     0.2%     1.4%
Desjardins Group              0.2%     0.2%     0.2%     1.3%
Deutsche Bank Securities      0.0%     0.0%     0.2%     ---
Deutsche Postbank AG          ---      0.2%     ---      ---
DZ Bank                       0.2%     0.3%     0.3%     ---
Exane                         ---      0.1%     ---      ---
First Trust Advisors          0.4%     0.2%     ---      ---
FTN Financial                 0.2%    -0.3%    -0.1%     1.4%
Goldman, Sachs & Co.          0.2%     0.0%     0.2%     ---
Helaba                        0.2%     0.1%     0.1%     1.3%
High Frequency Economics      0.3%    -0.1%     0.2%     ---
HSBC Markets                  0.2%     0.1%     0.2%     1.4%
Hugh Johnson Advisors         0.2%     0.3%     ---      ---
IDEAglobal                    0.2%     0.2%     0.2%     1.4%
IHS Global Insight           -0.1%     0.2%     0.3%     ---
Informa Global Markets        0.3%     0.1%     ---      ---
ING Financial Markets         0.2%     0.2%     0.2%     1.4%
Insight Economics             0.1%     0.1%     0.2%     ---
Intesa-SanPaulo               0.2%     0.2%     ---      ---
J.P. Morgan Chase             0.2%     0.2%     0.1%     1.3%
Janney Montgomery Scott      -0.2%    -0.1%     0.2%     1.4%
Jefferies & Co.               0.2%     0.1%     ---      ---
Landesbank Berlin             0.2%     0.3%     ---      ---
Landesbank BW                 0.1%     0.1%     ---      1.3%
Maria Fiorini Ramirez         0.2%     0.2%     0.2%     ---
MET Capital Advisors          ---      0.1%     ---      ---
MF Global                     0.1%     0.1%     0.2%     1.4%
Mizuho Securities             0.2%     ---      ---      ---
Moody’s Analytics             0.0%     0.1%     0.3%     ---
Morgan Keegan & Co.           0.2%     0.2%     ---      1.3%
Morgan Stanley & Co.          0.1%     0.1%     ---      ---
Natixis                       0.2%     0.1%     0.2%     1.4%
Newedge                       0.2%     0.1%     ---      ---
Nomura Securities             0.0%     0.2%     0.2%     1.4%
Nord/LB                       0.1%     0.2%     ---      ---
OSK Group/DMG                 0.1%     0.2%     ---      ---
Parthenon Group               0.2%     0.1%     0.2%     ---
Pierpont Securities           0.2%     0.0%     0.2%     ---
PineBridge Investments        0.2%    -0.1%     ---      1.4%
PNC Bank                      0.1%     0.0%     0.2%     ---
Raiffeisenbank International  0.2%     0.4%     0.3%     ---
Raymond James                 0.2%     0.1%     0.2%     ---
RBC Capital Markets           0.2%     0.2%     ---      ---
RBS Securities                0.0%     0.0%     0.2%     ---
Scotia Capital                0.2%    -0.1%     ---      ---
SMBC Nikko Securities         0.1%     0.4%     0.3%     1.5%
Societe Generale              0.1%     0.2%     ---      ---
Standard Chartered            0.1%     0.2%     0.2%     1.3%
State Street Global Markets   0.2%    -0.1%     0.2%     1.4%
Stone & McCarthy Research     0.0%     0.2%     ---      ---
TD Securities                 0.3%     0.3%     0.2%     ---
UBS                           0.3%     0.0%     ---      ---
University of Maryland        0.2%     0.2%     ---      ---
Wells Fargo & Co.             0.2%     0.1%     0.2%     1.4%
WestLB AG                     0.2%     0.2%     0.2%     ---
Westpac Banking Co.           0.1%     0.0%     0.3%     ---
Wrightson ICAP                ---      0.1%     0.2%     ---
==============================================================

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.