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Consumer Spending Probably Sped Up in July: U.S. Economy Preview

Spending by U.S. consumers probably climbed in July by the most in five months, easing concern the biggest part of the economy is backsliding, economists said before a report this week.

Purchases rose 0.5 percent after being little changed in June, according to the median estimate from 65 economists surveyed by Bloomberg before Aug. 30 figures from the Commerce Department. Other reports may indicate a recovery in housing is helping make up for a slowdown in manufacturing.

An improvement in personal spending, which makes up about 70 percent of the world’s largest economy, shows Americans are looking beyond the global slowdown as incomes keep growing. Chairman Ben S. Bernanke in a speech at the end of the week may help inform views on what options Federal Reserve policy makers have at their disposal to spur the recovery.

“Consumers are still participating in the recovery,” said Michael Hanson, a senior U.S. economist at Bank of America Corp. in New York. “Economic data has been too hot to get the Fed to jump in, but too cold to convince them that we’re really in a sustainable recovery. The economy is struggling to get back up on its feet.”

A rebound in the labor market in July augmented household purchasing power last month. Payrolls rose by 163,000 workers in July, the most since February, according to Labor Department data. This week’s spending report may show incomes increased 0.3 percent after gaining 0.5 percent in June, the most in three months, the economists projected.

Retail Sales

Retail sales rose 0.8 percent in July, the most in five months, Commerce Department data showed Aug. 14. Purchases climbed in all 13 sales categories, the first time that’s happened since 2005.

“The back-to-school business has been really quite good,” Ed Stack, chairman and chief executive officer of Dick’s Sporting Goods Inc., said during an Aug. 14 earnings call. The Coraopolis, Pennsylvania-based retailer this month boosted its forecast for full-year earnings. “We’ve been very pleased with our business,” he said.

A pickup in demand from consumers would help shore up the pace of economic growth. Americans’ purchases increased at a 1.5 percent annual rate in the second quarter, the smallest advance in a year. The slowdown helped cause the economy to cool.

The Commerce Department’s first revision to second-quarter gross domestic product on Aug. 29 may show a gain of 1.7 percent compared with an initially reported 1.5 percent increase, according to the Bloomberg survey median. In the first three months of the year, the economy expanded at a 2 percent rate.

FOMC Minutes

That pace of expansion has failed to reduce an unemployment rate that’s held above 8 percent for 42 straight months. It also explains why Fed policy makers, according to minutes last week of their July 31-Aug. 1 meeting, signaled they were ready to take additional steps to spur the recovery.

“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” according to the minutes of the Federal Open Market Committee’s gathering.

Bernanke, who will speak in Jackson Hole, Wyoming, Aug. 31 during an annual symposium hosted by the Federal Reserve Bank of Kansas City, may provide more insight on the central bank’s view. The Standard & Poor’s 500 Index rose 0.6 percent on Aug. 24, paring the first weekly decline in almost two months, after the Fed chief said he saw “more scope for further action,” in an Aug. 22 letter to California Republican Darrell Issa, the chairman of the House Oversight and Government Reform Committee.

Housing Market

The housing market, which precipitated the last recession, is starting to recover. Figures on Aug. 29 may show pending home sales, or contract signings for existing properties, rose 1 percent in July after a 1.4 percent drop the prior month, according to economists’ forecast before the National Association of Realtors report.

An Aug. 28 report may show home values are stabilizing. The S&P/Case-Shiller index of housing prices in 20 cities was probably unchanged in June from a year earlier, the first time since September 2010 that it hasn’t shown a dropped.

A pickup in home sales and construction is helping alleviate some of the weakness in manufacturing. A report last week showed orders for non-military capital goods excluding aircraft, a proxy for future business investment in new equipment, slumped 3.4 percent in July. Total bookings for durable goods, those meant to last at least three years, climbed 4.2 percent, paced by a 54 percent jump in demand for civilian aircraft.

The July factory orders report from the Commerce Department on Aug. 31 will update the figures on durable goods and give the first reading on non-durables like clothing and fuel. The surge in bookings for planes probably pushed order up by 1.9 percent, according to the survey median.

                       Bloomberg Survey

                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
Case Shiller Monthly MO   8/28      June      0.9%      0.5%
Case Shiller Monthly YO   8/28      June     -0.7%      0.0%
Consumer Conf Index       8/28      Aug.      65.9      66.0
GDP Annual QOQ%           8/29      2Q S      1.5%      1.7%
Personal Consump. QOQ%    8/29      2Q S      1.5%      1.5%
GDP Prices QOQ%           8/29      2Q S      1.6%      1.6%
Core PCE Prices QOQ%      8/29      2Q S      1.8%      1.8%
Pending Homes MOM%        8/29      July     -1.4%      1.0%
Pending Homes YOY%        8/29      July      8.4%     10.8%
Pers Inc MOM%             8/30      July      0.5%      0.3%
Pers Spend MOM%           8/30      July      0.0%      0.5%
PCE Deflator MOM%         8/30      July      0.1%      0.1%
PCE Deflator YOY%         8/30      July      1.5%      1.4%
Core PCE Prices MOM%      8/30      July      0.2%      0.1%
Core PCE Prices YOY%      8/30      July      1.8%      1.7%
Initial Claims ,000’s     8/30     25-Aug     372       370
Cont. Claims ,000’s       8/30     18-Aug     3317      3307
Chicago PM Index          8/31      Aug.      53.7      53.5
U of Mich Conf. Index     8/31     Aug. F     73.6      73.6
Factory Orders MOM%       8/31      July     -0.5%      1.9%

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