Growth Cooled as Americans Curbed Spending: U.S. Economy Preview

The U.S. economy probably expanded in the second quarter at the slowest pace in a year as a weaker labor market prompted Americans to cut back on their spending, economists said before a report this week.

Gross domestic product, the value of all goods and services the nation produced, rose at a 1.4 percent annual rate after a 1.9 percent gain in the prior quarter, according to the median forecast of 70 economists surveyed by Bloomberg News. Factory orders softened and new-home sales were little changed, other data may show.

Consumer purchases, which account for about 70 percent of the world’s largest economy, are weakening at a time Europe’s debt crisis and looming U.S. tax-policy changes threaten to further restrain corporate investment. The deceleration in growth, a concern Federal Reserve Chairman Ben S. Bernanke highlighted last week, will make it harder to trim unemployment stuck above 8 percent since February 2009.

“We’re seeing weak numbers pretty much across the board,” said Michael Hanson, a senior U.S. economist at Bank of America Corp. in New York. “Softening consumption is definitely a big part of the slowdown. The uncertainty over Europe and the fiscal cliff will impinge on business decisions and activity.”

A projected 1.3 percent gain in second-quarter household spending would be the smallest in a year and follow a 2.5 percent rise in the January to March period, according to the median projection ahead of the GDP release by the Commerce Department on July 27.

Retail Sales

Recent data signal consumers are reluctant to step up purchases. Retail sales fell in June for a third consecutive month, the longest period of declines since 2008. Same-store sales rose less than analysts’ estimates at retailers including Target Corp. (TGT) and Macy’s Inc. (M)

Payroll gains slowed to an average 75,000 last quarter, down from 226,000 in the prior three months and the weakest since the third quarter of 2010. The unemployment rate, which held at 8.2 percent in June, has exceeded 8 percent for 41 straight months.

The dimmer outlook for employment is taking a toll on Americans’ confidence as the economy heads into the second half of 2012. The Thomson Reuters/University of Michigan final index (SPX) of consumer sentiment fell to 72 in July, the lowest level this year, economists in the Bloomberg survey predicted ahead of the July 27 report.

“Economic activity appears to have decelerated somewhat during the first half of this year,” Bernanke said in testimony to Congress last week. The Fed is “prepared to take further action as appropriate to promote a stronger economic recovery.”

‘Frustratingly Slow’

He also said the reduction in the unemployment rate seems likely to be “frustratingly slow.” U.S. central bankers next meet on July 31.

Stocks have weakened since the end of March on concerns about global growth. The Standard & Poor’s 500 Index is down 3.3 percent since March 31.

Jobs and the economy are central themes in the presidential campaign, with President Barack Obama and Republican challenger Mitt Romney sparring over who can best revitalize the recovery.

Manufacturers, a driver of the expansion, may find fewer overseas customers for their products as the world economy slows. A July 26 report from the Commerce Department may show orders for durable goods rose 0.4 percent in June, after a 1.3 percent gain in May, according to the Bloomberg survey median. Demand excluding transportation equipment may have climbed 0.1 percent from a month earlier.

Xerox Profits

Some companies are already feeling the pinch. Xerox Corp. (XRX), the provider of printers and business services, cut its full- year profit forecast as the economic slump in Europe crimped demand for technology.

“The economic uncertainty has created more pressure especially in Europe and especially in our technology business,” Ursula Burns, chief executive officer of the Norwalk, Connecticut-based company, said on a July 20 conference call with analysts.

Housing, while stabilizing, may take time to strengthen as cooling employment and limited access to credit remain hurdles for buyers. New-home purchases climbed in June to a 370,000 annual rate, little changed from the prior month’s 369,000 pace, according to the Bloomberg survey median. The Commerce Department figures are due on July 25.

                       Bloomberg Survey
==============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
==============================================================
New Home Sales ,000’s     7/25      June      369       370
New Home Sales MOM%       7/25      June      7.6%      0.3%
Durables Orders MOM%      7/26      June      1.3%      0.4%
Durables Ex-Trans MOM%    7/26      June      0.7%      0.1%
Cap Goods Core MOM%       7/26      June      2.1%     -0.5%
Initial Claims ,000’s     7/26     21-Jul     386       380
GDP Annual QOQ%           7/27      1Q A      1.9%      1.4%
Personal Consump. QOQ%    7/27      1Q A      2.5%      1.3%
U of Mich Conf. Index     7/27     July F     72.0      72.0
==============================================================

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

Bloomberg reserves the right to edit or 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.