U.S. Economy Picked Up on Gain in Consumer Spending

The economy in the U.S. probably expanded in the fourth quarter at the fastest pace of 2011 as consumer spending picked up and companies rebuilt stockpiles, economists said before a report today.

Gross domestic product, the value of all goods and services produced, grew at a 3 percent annual pace after advancing 1.8 percent in the previous three months, according to the median forecast of 79 economists surveyed by Bloomberg News. Household purchases, which account for about 70 percent of the economy, may have climbed 2.4 percent, the survey showed.

Americans returned to auto showrooms and malls last quarter to replace aging cars and shop for holiday gifts as employment and incomes grew and fuel prices retreated. Even so, Federal Reserve officials said this week they are concerned about the economy’s lack of vigor two years after the last recession ended, prompting a pledge to keep interest rates low into 2014.

Confidence (CONSSENT) picked up to the point where consumers were in a better mood to spend but not splurge,” said Sal Guatieri, a senior U.S. economist at BMO Capital Markets in Toronto. “This is a marked improvement from the growth we saw in the past four quarters. It’s a long slog, but we’re gradually improving.”

Due at 8:30 a.m. in Washington, the Commerce Department’s GDP report marks the first of three for the quarter, with other releases scheduled in February and March when more information becomes available. Growth estimates ranged from 2.4 percent to 4.5 percent in the Bloomberg survey.

The growth rate as estimated would be the strongest since the second quarter of 2010.

The projected rise in consumer spending would be the biggest advance in a year and follow a 1.7 percent gain in the third quarter.

Auto Sales

Auto sales underpinned demand. Cars and light trucks sold at an average 13.4 million seasonally adjusted annualized rate in the final three months of 2011, the best since April-June 2008, figures from researcher Autodata Corp. show.

The increase in household spending was made possible by job growth. Employers took on 853,000 workers in the second half of 2011, compared with 787,000 in the first six months, and the unemployment rate dropped to an almost three-year-low of 8.5 percent in December.

A rebound in stock prices may have also given Americans the confidence to spend. The Standard & Poor’s 500 Index rose 11 percent in the final three months of 2011 after slumping 14 percent in the prior quarter, its worst decline since 2008.

To meet growing demand and replenish inventories, businesses placed more orders with manufacturers last quarter, prompting a December gain in production that was the biggest in a year, Fed data show.

Retail Purchases

Consumers’ resilience, nonetheless, is still in question as households try to rebuild savings that cooled throughout last year. Spending at retailers lost momentum each month in the fourth quarter, slowing from a 0.7 percent gain in October to a 0.1 percent increase last month. Merchants including Macy’s Inc., Gap Inc. and Target Corp. cut prices to attract more business during the holiday shopping season.

A deepening crisis in Europe may also hinder expansion. The International Monetary Fund this week cut its forecast for global growth in 2012 and said the euro crisis threatens to hamper the world economy.

“We feel great about where we see retail sales in the U.S., but certainly remain cautious as we look forward, given the tentative nature of the overall economy and consumer confidence,” John Olin, chief financial officer of Harley- Davidson Inc., said during a Jan. 24 conference call. “We are more concerned about retail sales in Europe, given the fact that they may already be in recession or may slip into recession.”

Harley-Davidson Sales

The nation’s biggest motorcycle maker, based in Milwaukee, said sales rose 12 percent in the U.S.

Fed officials said this week their benchmark interest rate will stay low until at least late 2014 and they forecast unemployment will “decline only gradually.”

A separate report at 9:55 a.m. today may show consumer sentiment was the strongest in eight months in January, bolstered by job gains. The Thomson Reuters/University of Michigan final index of confidence for the month climbed to 74 from 69.9 at the end of December.

                    Bloomberg Survey

=====================================================
                               GDP Personal  U of Mich
                            Annual Consump.    Conf.
                              QOQ%     QOQ%    Index
=====================================================
Date of Release              01/27    01/27    01/27
Observation Period            4Q A     4Q A   Jan. F
-----------------------------------------------------
Median                        3.0%     2.4%     74.0
Average                       3.0%     2.4%     74.3
High Forecast                 4.5%     3.6%     76.0
Low Forecast                  2.4%     1.2%     72.5
Number of Participants          79       27       62
Previous                      1.8%     1.7%     74.0
-----------------------------------------------------
4CAST                         3.2%     ---      73.7
ABN Amro                      2.6%     ---      74.0
Action Economics              3.2%     ---      74.0
Aletti Gestielle              3.1%     2.5%     74.5
Ameriprise Financial          3.4%     2.4%     75.0
Banca Aletti                  3.2%     2.6%     75.0
Banesto                       2.7%     ---      74.0
Bantleon Bank AG              2.9%     ---      73.5
Barclays Capital              2.5%     2.2%     75.5
Bayerische Landesbank         2.7%     2.2%     75.0
BBVA                          3.1%     2.2%     74.3
BMO Capital Markets           3.0%     ---      74.2
BNP Paribas                   2.7%     2.2%     75.0
BofA Merrill Lynch            2.7%     ---      74.0
Briefing.com                  3.2%     ---      74.5
Capital Economics             2.4%     ---      74.0
CIBC World Markets            3.0%     ---      ---
Citi                          2.8%     ---      76.0
ClearView Economics           3.1%     1.2%     75.0
Comerica                      3.3%     ---      ---
Commerzbank AG                3.3%     ---      ---
Credit Agricole CIB           3.0%     2.4%     74.0
Credit Suisse                 3.1%     ---      74.0
Daiwa Securities America      3.0%     ---      74.0
DekaBank                      2.7%     ---      74.0
Desjardins Group              2.8%     ---      74.0
Deutsche Bank Securities      3.0%     2.2%     75.0
Deutsche Postbank AG          2.7%     ---      74.0
DZ Bank                       3.0%     ---      ---
Exane                         2.9%     ---      ---
Fact & Opinion Economics      3.5%     ---      74.5
First Trust Advisors          3.5%     2.3%     74.5
FTN Financial                 3.0%     ---      74.5
Goldman, Sachs & Co.          3.2%     ---      ---
Helaba                        3.2%     ---      ---
Herrmann Forecasting          3.1%     2.5%     74.3
High Frequency Economics      2.8%     2.5%     74.0
HSBC Markets                  3.6%     2.7%     75.5
Hugh Johnson Advisors         3.0%     ---      74.0
IDEAglobal                    2.8%     2.3%     75.0
IHS Global Insight            2.8%     ---      74.0
Informa Global Markets        2.7%     2.3%     73.8
ING Financial Markets         2.6%     3.6%     74.3
Insight Economics             3.2%     ---      74.0
Intesa Sanpaulo               2.8%     ---      ---
J.P. Morgan Chase             3.0%     2.3%     74.5
Jefferies & Co.               3.2%     ---      75.0
Landesbank Berlin             3.2%     ---      74.0
Landesbank BW                 4.5%     ---      73.8
Maria Fiorini Ramirez         3.0%     ---      ---
Market Securities             2.9%     ---      ---
Mizuho Securities             2.5%     ---      75.0
Moody’s Analytics             3.3%     ---      74.5
Morgan Keegan & Co.           3.0%     ---      ---
Morgan Stanley & Co.          2.7%     ---      ---
National Bank Financial       3.0%     ---      ---
Natixis                       3.0%     2.4%     ---
Nomura Securities             3.4%     ---      ---
Nord/LB                       2.8%     ---      74.5
OSK Group/DMG                 3.0%     2.5%     74.6
O’Sullivan                    2.9%     ---      74.8
Parthenon Group               3.2%     2.4%     74.3
Pierpont Securities           3.0%     ---      73.5
PNC Bank                      3.2%     ---      73.0
Raiffeisenbank International  4.0%     ---      74.0
Raymond James                 2.7%     ---      74.8
RBC Capital Markets           2.4%     2.1%     72.5
Scotia Capital                3.0%     ---      ---
SMBC Nikko Securities         2.9%     2.8%     74.0
Societe Generale              2.9%     2.4%     73.0
Standard Chartered            2.8%     2.6%     73.5
Stone & McCarthy Research     2.8%     ---      73.9
TD Securities                 3.0%     2.7%     75.5
UBS                           3.0%     2.4%     73.5
Union Investment              2.8%     ---      74.0
University of Maryland        3.2%     ---      74.0
Wells Fargo & Co.             3.4%     ---      ---
Westpac Banking Co.           2.8%     ---      75.0
Wrightson ICAP                2.7%     ---      74.0
=====================================================

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

Press spacebar to pause and continue. Press esc to stop.

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.