Consumer Spending in U.S. Probably Slowed on Limited Job, Income Growth

U.S. consumer spending probably slowed in August, reflecting growing pessimism among households that may further restrain the biggest part of the economy, economists said reports this week will show.

Purchases rose 0.2 percent after July’s 0.8 percent gain, according to the median estimate of 63 economists in a Bloomberg News survey before the Commerce Department’s report Sept. 30. Consumer confidence held close to a more than two-year low, home sales dropped for a fourth month and factory orders for big- ticket items declined, other reports this week may show.

Scarce employment prospects, tepid wage gains and a stock market rout have pummeled consumer sentiment, which threatens to slow sales for companies like Ford Motor Co. (F) The slowing economy prompted Federal Reserve policy makers last week to introduce another round of unconventional stimulus to ensure the recovery is sustained.

“There’s a lot of worry about what’s going to happen next,” said Julia Coronado, chief economist North America at BNP Paribas in New York. “I can’t imagine that everything we’re seeing right now has no ramifications for economic activity. Why would consumers just say: ‘The global economy is falling apart, but I’m going to go out and buy a new car?’”

The Commerce Department’s report on personal spending at the end of the week will also show incomes rose 0.1 percent, the smallest gain in nine months, according to the median estimate in the Bloomberg survey. The gain would follow a 0.3 percent increase in July.

Ford Sales

While Ford said Sept. 23 that U.S. sales of pickup trucks are their highest since December, the Dearborn, Michigan-based manufacturer said it’s started considering the possibility of another recession.

“But it’s not our plan,” George Pipas, a Ford sales analyst, told reporters two days ago. “You can’t ignore the economic data coming in. So you have to attach some level of probability to it.”

While Pipas declined to say what probability Ford gives a recession, “our plan is economic growth will be slow over the next several quarters.”

Stocks slumped last week on concerns about the global economy. The Dow Jones Industrial Average suffered its worst weekly loss since 2008, falling 6.4 percent, while the yield on the benchmark 10-year Treasury note touched a record-low 1.67 percent.

Gauges of sentiment show a sharp deterioration. The Conference Board’s consumer confidence index rose to 46 this month from an August reading of 44.5, the weakest since April 2009, according to the median estimate in the Bloomberg survey before a Sept. 27 report.

Employment, Wages

Employment was unchanged last month, the worst reading since September 2010, and the unemployment rate held at 9.1 percent, the Labor Department said Sept. 2. The report also showed average hourly earnings fell for the first time in more than three years.

“We’ve got to turn around sentiment in order to see some growth beyond what we are expecting right now,” FedEx Corp. (FDX) Chief Financial Officer Alan Graf said Sept. 22. Graf said his company projects the economy will expand 1.8 percent this year.

FedEx, an economic bellwether and operator of the world’s biggest cargo airline, said last week that pessimism surrounding the economy’s trajectory is keeping growth subdued. The Memphis, Tennessee-based company’s shares fell by the most since December 2008 after it cut full-year profit forecast amid declining demand in the U.S. and Asia

“We expect sluggish economic growth will continue, largely due to a lack of confidence that U.S. and European policy makers will effectively address current economic challenges,” FedEx Chief Executive Officer Fred Smith said on the conference call after the forecast was released.

Fed’s Boost

Fed officials announced a plan last week to replace some notes in their portfolio with longer-term Treasuries to further reduce borrowing costs.

The central bank also said they would reinvest maturing housing debt into mortgage-backed securities “to help support conditions in the mortgage market.” Fed Chairman Ben S. Bernanke said earlier this month that housing weakness is a key reason for the “frustratingly slow pace of the recovery.”

New-home sales in August declined 1.3 percent to a 294,000 annual rate, the slowest since February, according to the median projection in the Bloomberg survey. The Commerce Department’s report is tomorrow at 10 a.m.

Pending home sales, or contract signings for existing homes, decreased 1.6 percent in August after falling 1.3 percent the prior month, economists forecast the National Association of Realtors will report on Sept. 29. The S&P/Case-Shiller index of home prices in 20 cities, due Sept. 27, likely fell in July from a year earlier at the same rate as the previous month.

The U.S. economy isn’t getting a boost from housing, which has aided every recovery since 1982 except the current one. In the first half of the year, the economy expanded at the slowest pace since the recession ended in 2009, economists project revised Commerce Department figures will show Sept. 29.

As consumer spending cools and businesses ship fewer goods to struggling economies overseas, U.S. factories are seeing fewer orders. Bookings for durable goods designed to last several years declined 0.5 percent in August, according to the Bloomberg survey median before the Commerce Department’s Sept. 28 report.

                        Bloomberg Survey

==============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
==============================================================
New Home Sales ,000’s     9/26      Aug.      298       294
New Home Sales MOM%       9/26      Aug.     -0.7%     -1.3%
Case Shiller Monthly MO   9/27      July     -0.1%      0.1%
Case Shiller Monthly YO   9/27      July     -4.5%     -4.5%
Case Shiller Monthly In   9/27      July     141.3     142.2
Consumer Conf Index       9/27     Sept.      44.5      46.0
Durables Orders MOM%      9/28      Aug.      4.1%     -0.5%
Durables Ex-Trans MOM%    9/28      Aug.      0.8%      0.0%
Cap Goods Core MOM%       9/28      Aug.     -0.9%     -0.4%
Initial Claims ,000’s     9/29     23-Sep     423       420
Cont. Claims ,000’s       9/29     17-Sep     3727      3730
GDP Annual QOQ%           9/29      2Q T      1.0%      1.2%
Personal Consump. QOQ%    9/29      2Q T      0.4%      0.4%
GDP Prices QOQ%           9/29      2Q T      2.4%      2.4%
Core PCE Prices QOQ%      9/29      2Q T      2.2%      2.2%
Pending Homes MOM%        9/29      Aug.     -1.3%     -1.6%
Pers Inc MOM%             9/30      Aug.      0.3%      0.1%
Pers Spend MOM%           9/30      Aug.      0.8%      0.2%
PCE Deflator YOY%         9/30      Aug.      2.8%      2.9%
Core PCE Prices MOM%      9/30      Aug.      0.2%      0.2%
Core PCE Prices YOY%      9/30      Aug.      1.6%      1.7%
Chicago PM Index          9/30     Sept.      56.5      55.5
U of Mich Conf. Index     9/30     Sept. F    57.8      57.8
==============================================================

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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

5:13

Sept. 22 (Bloomberg) -- John Herrmann, senior fixed-income strategist at State Street Global Markets, talks about the outlook for the U.S. economy. Herrmann also discusses the Federal Reserve's assessment of the economy and the U.S. labor market. He speaks with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart." (Source: Bloomberg)