Spending Probably Rose in U.S., Home Sales Climbed

Photographer: Tim Boyle/Bloomberg

A jump in auto sales last month is among the evidence that the world’s largest economy is rebounding from the damage caused by superstorm Sandy. Close

A jump in auto sales last month is among the evidence that the world’s largest economy... Read More

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Photographer: Tim Boyle/Bloomberg

A jump in auto sales last month is among the evidence that the world’s largest economy is rebounding from the damage caused by superstorm Sandy.

Consumer spending probably rose in November as Americans set aside the threat of higher taxes next year while shopping for the holidays, economists said before reports this week.

Household purchases increased 0.4 percent last month after declining 0.2 percent in October, according to the median estimate from 66 economists surveyed by Bloomberg before Dec. 21 figures from the Commerce Department. Other reports may show home sales and demand for long-lasting goods climbed.

“The economy is holding in,” said Jim O’Sullivan, chief U.S. economist for High Frequency Economics Ltd. in Valhalla, New York. “For the household sector, the housing numbers have been quite good. The labor-market numbers are OK.”

A jump in auto sales last month is among the evidence that the world’s largest economy is rebounding from the damage caused by superstorm Sandy. Improving property values and falling fuel costs are helping brace consumers against the more than $600 billion in tax increases and government spending cuts that will take effect in January without action from Congress.

“There is a lot of nervousness about the fiscal cliff, so I think how that gets resolved will be important to what happens next,” O’Sullivan said.

Photographer: Tim Boyle/Bloomberg

Customers shop at a Costco Wholesale Corp. store in Mount Prospect, Illinois. Close

Customers shop at a Costco Wholesale Corp. store in Mount Prospect, Illinois.

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Photographer: Tim Boyle/Bloomberg

Customers shop at a Costco Wholesale Corp. store in Mount Prospect, Illinois.

Retail sales rose 0.3 percent last month after a 0.3 percent decrease in October, the Commerce Department reported last week. Ten of 13 major categories showed gains, led by a 1.4 percent increase at auto dealers, a 2.5 percent jump at electronics outlets and a 0.9 percent pickup at clothing stores.

Auto Sales

Cars and light trucks sold in November at a 15.5 million annual rate, the fastest pace since February 2008 and up from 14.2 million in October when Sandy kept East Coast shoppers away during dealers’ busiest time of the month, data from Ward’s Automotive Group show.

Limited Brands Inc., the operator of the Victoria’s Secret lingerie chain, reported comparable sales rose 5 percent in November, topping projections for a 3.4 percent gain. The Columbus, Ohio-based Limited Brands said Sandy, which swept ashore Oct. 29, reduced its comparable-store sales growth by as much as 2 percentage points.

From July to September, household purchases contributed 1 percentage point to the economic expansion, which proceeded at a 2.7 percent annual rate. The rate of economic growth for last quarter will be revised up to 2.8 percent when the Commerce Department issues updated figures on Dec. 20, according to the median forecast in a Bloomberg survey.

Housing Gains

An improving housing market is supporting the economy. Residential construction has contributed to growth for six consecutive quarters, the best showing since 2005, as builders begin to restore the inventory of new homes.

After three consecutive gains, homebuilding took a breather in November, according to economists surveyed. Housing starts fell to 873,000 annual rate after reaching a four-year high 894,000 rate in October, economists project a Commerce Department report to show Dec. 19. Building permits, a proxy for future construction, probably rose to an 875,000 annual pace.

Homebuilder shares have been benefitting as a result. The Standard & Poor’s Supercomposite Homebuilding Index has climbed 17.7 percent so far in the second half of 2012, compared with a 3.8 percent gain in the broader 500 Index.

Healing in the market for new houses is complementing progress in existing properties, which have benefited from mortgage rates near record-lows and rising home values. Sales of previously owned homes probably rose to a 4.9 million pace, a three-year high, economists forecast a report from the National Association of Realtors will show Dec. 20.

Consumer Confidence

Nonetheless, the government spending cuts and tax increases that Federal Reserve Chairman Ben S. Bernanke termed the “fiscal cliff” during congressional testimony in February is starting to show up in some measures of consumer confidence.

The Thomson Reuters/University of Michigan consumer sentiment index decreased in December to a four-month low, a Dec. 21 report is projected to show. Those figures contrast with the Bloomberg Consumer Comfort Index which has held within a narrow range since jumping to a six-month high in mid October.

Fed policy makers last week for the first time linked the outlook for its main interest rate to unemployment and inflation and said it will expand its asset purchase program in January to spur the economy.

A tightening in fiscal policy is a “major risk factor” that is already harming investment and hiring decisions by causing “uncertainty” or “pessimism,” Bernanke said in a press conference following the central bank’s announcement. The Fed “doesn’t have the tools” to offset that event, he said.

There are also signs that companies, which had curbed capital spending in the second half of the year, are looking past the budget battle. Orders for durable goods, those meant to last at least three years, climbed 0.5 percent in November for a second month, a Commerce Department will show on Dec. 21, according to the Bloomberg survey median.

                        Bloomberg Survey

===============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
===============================================================
Empire Manu. Index       12/17      Dec.      -5.2      -1.0
NAHB Housing Index       12/18      Dec.       46        47
Housing Starts ,000’s    12/19      Nov.      894       873
Building Permits ,000’s  12/19      Nov.      868       875
GDP Annual QOQ%          12/20      3Q T      2.7%      2.8%
Personal Consump. QOQ%   12/20      3Q T      1.4%      1.4%
Exist Homes Mlns         12/20      Nov.      4.79      4.90
Philly Fed Index         12/20      Dec.     -10.7      -3.0
LEI  MOM%                12/20      Nov.      0.2%     -0.2%
Pers Inc MOM%            12/21      Nov.      0.0%      0.3%
Pers Spend MOM%          12/21      Nov.     -0.2%      0.4%
Durables Orders MOM%     12/21      Nov.      0.5%      0.5%
Durables Ex-Trans MOM%   12/21      Nov.      1.8%     -0.2%
Cap Goods Core MOM%      12/21      Nov.      2.9%     -1.0%
U of Mich Conf. Index    12/21     Dec. F     74.5      75.0
==============================================================

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 at cwellisz@bloomberg.net

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