Economy in U.S. Probably Expanded at Slowest Pace in Year

Photographer: Justin Sullivan/Getty Images

A pedestrian is seen reflected in the window of a shoe store on April 16, 2012 in New York. Close

A pedestrian is seen reflected in the window of a shoe store on April 16, 2012 in New York.

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Photographer: Justin Sullivan/Getty Images

A pedestrian is seen reflected in the window of a shoe store on April 16, 2012 in New York.

The U.S. economy probably expanded in the second quarter at the slowest pace in a year as a softening labor market caused Americans to cut back on spending, economists said before a report today.

Gross domestic product, the value of all goods and services 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 81 economists surveyed by Bloomberg News. Consumer purchases, which account for about 70 percent of the world’s largest economy, may have grown at the weakest pace in a year.

Households are restraining spending just as Europe’s debt crisis and looming U.S. tax-policy changes curb corporate investment, hurting sales at companies from United Parcel Service Inc. (UPS) to Procter & Gamble Co. (PG) Cooling growth makes it harder to reduce unemployment, helping explain why Federal Reserve Chairman Ben S. Bernanke told Congress last week that policy makers stand ready with more stimulus if needed.

“We have an economy that is still very weak,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York and the best forecaster of U.S. economic data in the two years through May, according to data compiled by Bloomberg. “Job growth is not enough to make a big dent in the unemployment rate. Households are trying to repair their finances. I don’t see any significant drivers for the economy in the second half.”

The Commerce Department will release the GDP report at 8:30 a.m. in Washington. Economists’ estimates for growth ranged from 0.7 percent to 1.9 percent. The agency will also issue annual revisions to GDP going back three years.

Consumer Sentiment

A separate report at 9:55 a.m. may show the Thomson Reuters/University of Michigan final index of consumer sentiment fell to 72 in July, the lowest level this year, from 73.2 a month earlier, economists in the Bloomberg survey predicted.

Stocks are reflecting concerns about the global economy. The Standard & Poor’s 500 Index fell 3.3 percent from April through June, the first drop in three quarters. The gauge is little changed so far this month, closing yesterday at 1,360.02, compared with 1,362.16 on June 29.

The projected 1.3 percent gain in second-quarter household spending would be about half the 2.5 percent rise from January through March, according to the median estimate before the GDP figures.

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)

Slowing Sales

Slowing sales and currency fluctuations led Procter & Gamble, the world’s largest consumer products company, to cut profit forecasts three times this year.

Among frugal consumers is Roger Szemraj, a lobbyist for the food industry with OFW Law in Washington, who drives a hybrid car and said his routine has always been to find the grocery store with the best deals.

“We are always looking to see what are the sales items and try to buy in that instance,” said Szemraj who was shopping at Safeway Inc. store in the Georgetown neighborhood of Washington because of a sale on lamb. “It’s a matter of looking to see what the sales price is.”

Consumers may remain cautious until hiring accelerates. Payroll gains averaged 75,000 in the second quarter, down from 226,000 in the prior three months and the weakest in almost two years. The unemployment rate, which held at 8.2 percent in June, has exceeded 8 percent for 41 straight months.

Bernanke told lawmakers last week that progress in reducing the jobless rate will probably be “frustratingly slow.”

‘Further Action’

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

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.

UPS, the world’s largest package-delivery company, cut its full-year profit forecast after a drop in second-quarter international package sales. The Atlanta-based company, considered an economic bellwether because it moves goods ranging from financial documents to pharmaceuticals, projects the U.S. will grow 1 percent in the remainder of 2012.

Nervous Customers

“Economies around the world are showing signs of weakening and our customers are increasingly nervous,” Chief Executive Officer Scott Davis said on a July 24 call with analysts. “In the U.S., uncertainty stemming from this year’s elections and the looming fiscal cliff constrains the ability of businesses to make important decisions such as hiring new employees, making capital investments, and restocking inventories.”

A pickup in homebuilding has helped some manufacturers to fare better. Caterpillar Inc., the largest maker of construction and mining equipment, this week raised its full-year profit forecast on increased demand from North American builders.

“We are planning for a world that is growing anemically in the next 24 months,” Chief Executive Officer Doug Oberhelman said on a July 25 conference call to discuss his company’s earnings. “We are not planning for an implosion.”

Business investment, a driver of the expansion, may slow as weaker overseas markets limit exports. Orders for non-defense capital goods excluding aircraft, a proxy for future corporate spending on equipment, decreased in June, signaling production may cool.

                       Bloomberg Survey

================================================================
                               GDP Personal      GDP  U of Mich
                            Annual Consump.   Prices    Conf.
                              QOQ%     QOQ%     QOQ%    Index
================================================================

Date of Release              07/27    07/27    07/27    07/27
Observation Period            2Q A     2Q A     2Q A   July F
----------------------------------------------------------------
Median                        1.4%     1.3%     1.5%     72.0
Average                       1.4%     1.4%     1.6%     72.2
High Forecast                 1.9%     2.3%     2.2%     75.0
Low Forecast                  0.7%     0.7%     0.6%     69.0
Number of Participants          81       23       37       63
Previous                      1.9%     2.5%     2.0%     72.0
----------------------------------------------------------------
4CAST                         1.1%     ---      2.2%     72.5
ABN Amro                      1.4%     ---      ---      73.0
Action Economics              1.5%     ---      1.6%     72.0
Ameriprise Financial          1.3%     1.6%     1.6%     71.5
Banca Aletti                  1.6%     1.5%     2.0%     73.0
Bank of Tokyo-Mitsubishi      1.5%     ---      ---      74.0
Banorte-IXE                   1.3%     1.4%     ---      72.0
Bantleon Bank AG              1.4%     ---      ---      ---
Barclays                      1.5%     1.3%     1.5%     74.0
Bayerische Landesbank         1.7%     2.0%     ---      73.0
BBVA                          1.9%     1.8%     1.5%     72.0
BMO Capital Markets           1.7%     ---      1.7%     72.0
BNP Paribas                   1.2%     1.4%     2.0%     73.0
BofA Merrill Lynch            1.2%     ---      ---      72.0
Briefing.com                  ---      ---      ---      71.5
Capital Economics             1.5%     ---      ---      72.0
CIBC World Markets            1.7%     ---      1.4%     ---Citi
1.3%     ---      1.2%     72.0
ClearView Economics           1.4%     0.7%     1.2%     71.0
Comerica                      1.9%     ---      2.0%     ---
Commerzbank AG                1.2%     ---      ---      71.0
Credit Agricole CIB           1.2%     1.2%     1.5%     71.5
Credit Suisse                 1.6%     ---      1.9%     72.0
Daiwa Securities America      1.5%     ---      2.0%     72.0
Danske Bank                   1.9%     1.4%     ---      ---
DekaBank                      1.1%     ---      ---      ---
Desjardins Group              1.2%     ---      ---      72.0
Deutsche Bank Securities      1.0%     ---      ---      73.0
Deutsche Postbank AG          1.7%     ---      ---      73.2
DZ Bank                       1.6%     ---      ---      ---
First Trust Advisors          1.0%     1.1%     1.6%     73.0
FTN Financial                 1.2%     ---      ---      71.5
Goldman, Sachs & Co.          1.1%     ---      ---      74.0
Helaba                        1.8%     ---      ---      ---High
Frequency Economics      1.5%     ---      1.5%     72.5
HSBC Markets                  1.1%     1.3%     1.7%     72.0
Hugh Johnson Advisors         1.5%     ---      1.5%     72.0
IDEAglobal                    1.5%     1.7%     1.8%     73.0
IHS Global Insight            1.2%     ---      ---      73.1
Informa Global Markets        1.0%     1.3%     1.4%     72.3
ING Financial Markets         1.6%     ---      ---      74.0
Insight Economics             1.2%     ---      1.5%     72.0
Intesa Sanpaulo               1.7%     ---      ---      72.5
J.P. Morgan Chase             1.4%     1.0%     1.6%     72.0
Janney Montgomery Scott       1.2%     0.9%     1.7%     ---
Jefferies & Co.               1.5%     ---      1.5%     71.5
John Hancock Financial        1.5%     ---      ---      ---
Landesbank Berlin             1.0%     ---      ---      72.2
Landesbank BW                 0.9%     ---      ---      72.0
Lloyds Bank                   1.3%     ---      ---      72.5
Maria Fiorini Ramirez         1.4%     ---      ---      ---
Market Securities             1.3%     ---      ---      ---MET
Capital Advisors          1.5%     ---      ---      ---Mizuho
Securities             1.6%     ---      ---      71.0
Moody’s Analytics             1.4%     ---      ---      72.5
Morgan Stanley & Co.          1.7%     ---      ---      ---
National Bank Financial       1.5%     ---      1.5%     ---
Natixis                       1.4%     ---      0.6%     ---
Nomura Securities             1.4%     ---      ---      ---
Nord/LB                       1.9%     ---      1.6%     72.5
OSK Group/DMG                 1.5%     1.3%     1.8%     72.2
Pierpont Securities           0.7%     ---      ---      71.6
PineBridge Investments        1.6%     ---      ---      69.0
PNC Bank                      1.2%     ---      1.3%     75.0
Raiffeisenbank International  1.3%     ---      ---      72.0
Raymond James                 1.0%     ---      ---      71.8
RBC Capital Markets           1.5%     1.3%     ---      71.5
RBS Securities                1.4%     ---      1.4%     ---
Scotiabank                    1.6%     ---      ---      72.0
SMBC Nikko Securities         1.2%     1.9%     1.3%     72.5
Societe Generale              0.9%     1.1%     1.6%     71.5
Southern Polytechnic State    0.9%     ---      ---      ---
Standard Chartered            1.4%     1.5%     ---      71.5
Stone & McCarthy Research     1.3%     ---      1.5%     72.0
TD Securities                 1.8%     2.3%     1.6%     71.5
UBS                           1.5%     1.2%     1.5%     73.0
UniCredit Research            1.5%     ---      ---      72.0
Union Investment              1.6%     ---      ---      73.0
University of Maryland        1.5%     ---      1.5%     72.0
Wells Fargo & Co.             1.2%     ---      ---      ---
Westpac Banking Co.           1.2%     ---      ---      72.0
Wrightson ICAP                1.0%     ---      ---      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

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