Americans Spend More for First Time in Three Months: Economy

Consumer Spending in U.S. Climbs for First Time in Three Months
Women's jeans hang on display at The Gap Inc's new Piperlime store in the Soho neighborhood of New York, on Aug. 29, 2012. Photographer: Peter Foley/Bloomberg

Americans stepped up spending in July for the first time in three months as an increase in incomes helped make up for a jobless rate stuck above 8 percent.

Purchases increased 0.4 percent after being little changed in June, Commerce Department figures showed today in Washington. Other reports today showed consumer confidence held close to a seven-month low, and claims for unemployment benefits were unchanged.

Stronger household spending is fueling sales at retailers such as Gap Inc. and may set the stage for a pickup in economic growth. At the same time, more expensive gasoline may prompt shoppers to watch their wallets, while a slowing global economy makes employers cautious about hiring.

“The consumer’s situation is slowly improving, but the job growth isn’t there to support really big gains in future spending,” said Gus Faucher, a senior economist at PNC Financial Services Group Inc. in Pittsburgh, who correctly forecast the increases in purchases. “The quarter is getting off to a decent start.”

U.S. stocks retreated, trimming the third straight monthly advance for the benchmark Standard & Poor’s 500 Index, as reports from Europe and Asia intensified concern the global economy is cooling. The S&P 500 fell 0.8 percent to 1,399.48 at the close of trading in New York.

Economic confidence in the 17-nation euro area fell more than economists forecast in August as the region’s slump deepened.

European Sentiment

An index of executive and consumer sentiment dropped to 86.1 from 87.9 in July, the European Commission in Brussels said today. That’s the lowest since August 2009.

South Korea reported that manufacturers’ confidence for September stayed near the lowest level since the 2007-2009 world credit crunch. Japan’s retail sales fell more than economists forecast in July.

The median estimate of 76 economists surveyed by Bloomberg called for a 0.5 percent gain in U.S. consumer spending. Projections ranged from increases of 0.2 percent to 0.7 percent.

Incomes climbed 0.3 percent for a third month. Because spending rose more than incomes, the saving rate fell to 4.2 percent from 4.3 percent in June, the highest level in a year.

An early indicator of consumer spending, retail sales, rose 0.8 percent in July, the most in five months, Commerce Department data showed Aug. 14. Receipts climbed in all 13 sales categories, the first time that’s happened since 2005.

Gap, Macy’s

The gains in demand last month may have extended into August. Gap and Macy’s Inc. posted same-store sales this month that topped analysts’ estimates as shoppers took advantage of back-to-school promotions.

Sales at Gap, the biggest U.S. specialty-apparel retailer, climbed 9 percent, beating the average projection for a 5.5 percent gain from analysts surveyed by researcher Retail Metrics Inc. Macy’s, the department-store chain, posted a 5.1 increase in same-store sales, topping the 3.3 percent estimate.

Same-store sales for the more than 20 companies tracked by Swampscott, Massachusetts-based Retail Metrics rose 2.7 percent, beating the average estimate for a 1.8 percent gain.

“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.

Purchasing Power

A jump in employment growth shored up household purchasing power last month. Payrolls rose by 163,000 workers in July, the most since February, according to Labor Department data. At the same time, the jobless rate rose to 8.3 percent, the highest level in five months. Unemployment has persisted above 8 percent for more than three years.

Sustained consumer demand would boost the pace of economic expansion in the U.S. Americans’ purchases increased at a 1.7 percent annual rate in the second quarter, the smallest advance in a year. The world’s largest economy expanded at a revised 1.7 percent annual rate in the second quarter as well.

Federal Reserve Chairman Ben S. Bernanke may use a speech tomorrow in Jackson Hole, Wyoming, to discuss the central bank’s assessment of the expansion. Policy makers have said they are prepared to provide new stimulus “fairly soon” unless they’re convinced the economy is poised to rebound, according to the minutes of the Federal Open Market Committee’s July 31-Aug. 1 meeting released last week.

Spending Forecast

Consumer spending will increase at a 2 percent rate in the third quarter, according to the median forecast of 78 economists surveyed by Bloomberg from Aug. 3 to Aug. 8.

Faster growth driven by household spending will probably hinge on bigger job gains. Gasoline prices present an additional obstacle. The average price of a gallon of regular gasoline climbed 28 cents since July 30 to reach $3.80 on Aug. 28, according to AAA, the nation’s largest auto club.

The Bloomberg Consumer Comfort Index was little changed at minus 47.3 in the period ended Aug. 26, from the prior week’s minus 47.4 reading that was the weakest since mid-January. The gain halted a six-week decline that was the longest since 2008, when the U.S. was in a recession.

The index showed 76 percent of survey respondents last week said it was a bad time to buy needed items, the worst reading since late January. The measure of the buying climate slumped to minus 52.4 from minus 48.9.

Jobless Claims

Jobless claims were little changed at 374,000 in the week ended Aug. 25, matching the upwardly revised figure from the prior week, the Labor Department reported today in Washington. The median forecast of 50 economists surveyed by Bloomberg News called for 370,000. The four-week moving average, a less volatile measure, climbed to a six-week high.

Companies will probably remain concerned about the possibility that taxes will rise and government spending will be cut unless lawmakers act by January. The debt crisis in Europe and a slowdown in China may also prompt employers to keeping payrolls lean.

Claims have “moved sideways most of the year,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York. “Hirings are what’s lacking at this point.”

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