U.S. Consumer Spending Probably Rose on Income Gains

Consumer spending in the U.S. probably climbed in March as incomes grew, indicating the biggest part of the economy is helping to sustain the expansion, economists said before a report today.

Household purchases, which account for about 70 percent of the economy, rose 0.4 percent after a 0.8 percent gain that was the most in seven months, according to the median estimate of 62 economists surveyed by Bloomberg News. An index (S15RETL) of business activity cooled this month, separate figures may show.

A job market that’s on the mend and warmer weather underpinned household purchases, which grew in the first quarter by the most in more than a year as sales climbed at car dealerships and retailers like Target Corp. (TGT) The pace of demand may be difficult to maintain this quarter without a pickup in hiring and wages.

“Consumers certainly helped to support first-quarter growth and will continue to play their part,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “The risk is, they may not be able to shoulder the expansion as much going forward. We need to see bigger gains in employment.”

The Commerce Department’s spending report is due at 8:30 a.m. in Washington. Economists’ forecasts for consumption ranged from gains of 0.2 percent to 0.8 percent.

At 9:45 a.m., a report from the Institute for Supply Management-Chicago Inc. may show its business barometer fell to 60.5 in April, from 62.2 the prior month, according to the Bloomberg survey median.

Income Gains

The Commerce Department data may also show incomes grew 0.3 percent, following a 0.2 percent gain, according to the survey median.

The March results will signal whether the consumer was gathering strength or losing it as the quarter drew to a close. Household spending rose 2.9 percent from January through March, Commerce Department data showed on April 27. Gross domestic product climbed at a 2.2 percent annual rate, less than projected and following a 3 percent pace the prior quarter.

The report was a reminder of the concerns of Federal Reserve officials, who last week said growth will be “moderate” as unemployment remains “elevated.”

The central bank “expects economic growth to remain moderate over coming quarters and then to pick up gradually,” policy makers said in an April 25 statement. They repeated a plan to hold borrowing costs low through 2014 to spur growth.

Employers increased payrolls by 635,000 from January through March, the biggest quarterly gain since the first three months of 2006.

April Employment

Later this week, the Labor Department may report payrolls advanced in April by 165,000 after a 120,000 gain the prior month, according to the Bloomberg survey median. Unemployment probably held at 8.2 percent. The rate has been above 8 percent since early 2009.

Unseasonably mild temperatures may have also spurred Americans to dine out and go shopping. The January-to-March period was the warmest first quarter in records going back to 1895, according to the National Oceanic and Atmospheric Administration.

Retailers posted gains in March as stores offered discounts and shoppers stocked up early on spring gear. March same-store sales at Target, the second-largest U.S. discount chain, and Gap Inc. (GPS), the biggest U.S. apparel chain, beat the average estimate of analysts. Cars sold last quarter at the fastest pace in four years, according to industry data.

Gasoline Prices

Employment and income gains may have given Americans some relief from higher fuel prices. The cost of a gallon of gasoline at the pump jumped 65 cents from the beginning of the year to $3.93 on March 31, which was the highest level in 10 months, according to AAA, the largest U.S. auto group. Fuel costs have eased since, to $3.83 on April 27.

Investors are optimistic about consumer spending. The Standard & Poor’s Supercomposite Retailing Index has increased almost 24 percent since the start of this year compared with a 12 percent advance in the broader S&P 500. (SPX)

Consumers also are spending on leisure. Starwood Hotels & Resorts Worldwide Inc. (HOT), owner of the luxury St. Regis and W brands, said first-quarter earnings rose more than fourfold, driven by sales of vacation units at the company’s new resort in south Florida.

“Our corporate clients and our leisure guests tell us that their appetite for travel is quite robust,” Frits van Paasschen, president and chief executive officer, said in an earnings conference call with analysts on April 26. “I still have yet to hear from a customer that plans to travel less in 2012 than in 2011.”

                        Bloomberg Survey

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

Date of Release              04/30    04/30    04/30    04/30
Observation Period           March    March    March    March
----------------------------------------------------------------
Median                        0.3%     0.4%     0.3%     0.2%
Average                       0.3%     0.4%     0.3%     0.2%
High Forecast                 0.8%     0.8%     0.3%     0.2%
Low Forecast                  0.1%     0.2%     0.2%     0.1%
Number of Participants          59       62       21       41
Previous                      0.2%     0.8%     0.3%     0.1%
----------------------------------------------------------------
4CAST                         0.2%     0.4%     ---      0.2%
ABN Amro                      0.3%     0.4%     ---      ---
Action Economics              0.3%     0.2%     0.3%     0.2%
Aletti Gestielle              0.3%     0.3%     ---      ---
Ameriprise Financial          0.4%     0.4%     ---      0.1%
Banca Aletti                  0.2%     0.6%     0.3%     0.2%
Barclays Capital              0.2%     0.3%     0.3%     0.2%
Bayerische Landesbank         0.2%     0.4%     ---      ---
BMO Capital Markets           0.5%     0.5%     ---      0.2%
BNP Paribas                   0.1%     0.4%     ---      0.2%
BofA Merrill Lynch            0.3%     0.4%     ---      ---
Briefing.com                  0.8%     0.8%     ---      0.2%
Capital Economics             0.2%     0.5%     0.3%     0.2%
CIBC World Markets            0.3%     0.6%     ---      ---
Citi                          0.3%     0.5%     ---      0.1%
ClearView Economics           0.3%     0.5%     ---      0.2%
Commerzbank AG                0.3%     0.3%     0.2%     0.2%
Credit Agricole CIB           0.3%     0.4%     ---      0.2%
Credit Suisse                 0.1%     0.2%     0.2%     0.2%
Danske Bank                   0.3%     0.3%     0.2%     0.2%
DekaBank                      0.3%     0.2%     0.2%     0.2%
Desjardins Group              0.5%     0.7%     0.2%     0.2%
Deutsche Bank Securities      0.3%     0.6%     ---      0.2%
Deutsche Postbank AG          ---      0.4%     ---      ---
DZ Bank                       0.2%     0.4%     ---      ---
Exane                         ---      0.3%     ---      ---
First Trust Advisors          0.5%     0.6%     ---      ---
Helaba                        0.3%     0.4%     0.3%     0.1%
HSBC Markets                  0.2%     0.4%     0.3%     0.2%
IDEAglobal                    0.3%     0.4%     ---      0.1%
IHS Global Insight            0.2%     0.2%     ---      0.2%
Informa Global Markets        0.2%     0.4%     0.2%     ---
ING Financial Markets         0.3%     0.5%     0.3%     0.2%
Insight Economics             0.2%     0.5%     ---      0.1%
Intesa Sanpaulo               0.2%     0.3%     ---      ---
Janney Montgomery Scott       0.1%     0.6%     ---      0.2%
Jefferies & Co.               0.2%     0.4%     0.3%     0.2%
Landesbank Berlin             0.3%     0.4%     ---      ---
Landesbank BW                 0.2%     0.4%     ---      ---
Maria Fiorini Ramirez         0.2%     0.4%     ---      0.2%
Moody’s Analytics             0.2%     0.4%     ---      0.2%
Morgan Stanley & Co.          0.1%     0.2%     ---      ---
National Bank Financial       0.2%     0.4%     ---      ---
Natixis                       0.4%     0.3%     ---      ---
Nomura Securities             0.4%     0.4%     0.2%     0.2%
Nord/LB                       0.3%     0.4%     ---      0.2%
OSK Group/DMG                 0.4%     0.3%     ---      0.2%
Parthenon Group               0.3%     0.4%     0.2%     ---
Pierpont Securities           0.4%     0.5%     ---      0.2%
PNC Bank                      0.1%     0.2%     0.2%     0.2%
Raymond James                 0.2%     0.4%     ---      0.2%
RBC Capital Markets           0.2%     0.2%     ---      ---
SMBC Nikko Securities         0.3%     0.6%     0.3%     0.2%
Societe Generale              0.1%     0.2%     0.2%     0.2%
Standard Chartered            0.1%     0.4%     ---      ---
Stone & McCarthy Research     0.1%     0.5%     ---      ---
TD Securities                 0.3%     0.5%     ---      0.2%
University of Maryland        0.3%     0.4%     ---      0.2%
Wells Fargo & Co.             0.3%     0.5%     0.3%     0.2%
WestLB AG                     0.3%     0.4%     ---      0.2%
Westpac Banking Co.           0.2%     0.2%     ---      ---
Wrightson ICAP                ---      0.4%     0.3%     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

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