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Spending Probably Cooled, Investment Fell: U.S. Economy Preview

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Black Friday, the day after U.S. Thanksgiving, is traditionally the beginning of the holiday shopping season in the U.S. when retailers lure customers with deep discounts. Photographer: Peter Foley/Bloomberg

Nov. 25 (Bloomberg) -- Consumer spending probably cooled in October and business investment dropped, showing how superstorm Sandy and the looming fiscal cliff are hindering U.S. growth at the end of 2012, economists said before reports this week.

Household purchases rose 0.1 percent last month, the smallest advance since June, after increasing 0.8 percent in September, according to the median estimate from 52 economists surveyed by Bloomberg before Nov. 30 figures from the Commerce Department. Orders for durable goods fell 0.8 percent in October, economists forecast another report to show.

Sandy shuttered some retailers in the Northeast, temporarily countering the benefits of gains in consumer sentiment that are brightening the holiday-shopping outlook. At the same time, the prospect that the economy will stumble should lawmakers not be able to ward off tax increases and government spending cuts scheduled for 2013 may be prompting companies to put off replacing outdated equipment.

“There’s a mixed picture,” said George Mokrzan, director of economics for Huntington National Bank in Columbus, Ohio. “Even though the consumer has shown some greater strength, business equipment spending has weakened. That may be a function of all this uncertainty that is primarily because of the fiscal cliff.”

An earlier read on spending from the Commerce Department on Nov. 14 showed retail sales fell in October for the first time in four months. While the Commerce Department said it was able to collect information from the storm-affected area, it said it couldn’t quantify Sandy’s impact.

Stores Closed

Sandy closed as many as 230 stores owned by Brown Shoe Co., according to Diane Sullivan, the St. Louis-based company’s president and chief executive officer. While all but four locations re-opened within nine days, the operator of the Famous Footwear chain expects fourth-quarter sales were cut by about $2.5 million, Sullivan said during a Nov. 20 earnings call.

The storm affected 106 Urban Outfitters Inc. stores and curtailed online shopping, reducing fiscal third-quarter revenue by about 1 percentage point, according to Chief Financial Officer Frank Conforti. The impact will be smaller in the fourth quarter, he said on a Nov. 19 call with analysts.

Auto demand also dropped, falling to a 14.2 million pace last month after Sandy hit during the auto industry’s busiest time of the month. Carmakers have said those sales should be made up by the end of the year.

Gaining Confidence

Nonetheless, more job opportunities, climbing home values and stronger finances are boosting consumer confidence, a Nov. 27 report from the Conference Board may show. The New York-based research group’s sentiment index climbed to 73, the highest level since February 2008, from 72.2 in October, according to the Bloomberg survey median.

From July to September, household purchases contributed 1.4 percentage points to the economic expansion, which proceeded at a 2 percent annual rate. That pace will probably be revised up to 2.8 percent when the Commerce Department releases updated third-quarter figures on Nov. 29, reflecting bigger gains in inventories and a smaller trade gap, economists estimate.

In contrast, businesses cut spending last quarter as commercial construction projects declined. The purchase of equipment and software was little changed, the weakest reading in more than three years.

The slowdown is probably due to the fiscal cliff, the more than $600 billion in tax increases and government spending cuts slated for the start of 2013 unless Congress acts, combined with weaker global demand.

Durable Goods

The Commerce Department’s durable goods report on Nov. 27 may show that excluding transportation equipment, where demand is often volatile, bookings dropped 0.6 percent after increasing 2 percent the previous month.

“What I hear from customers, what I hear from suppliers, what I hear from other CEOs that are running businesses is a real hesitation to step out and make big capital investments, to step out and take on big projects because of the ambiguity of what’s going on in the economy,” James Ryan, chairman and chief executive officer of W.W. Grainger Inc., the Lake Forest, Illinois-based supplier of tools and equipment, said during a Nov. 14 meeting with analysts.

Other reports this week may show the housing recovery is being sustained. Property values in 20 cities climbed in the year to September by the most in more than two years, economists project data from S&P/Case-Shiller on Nov. 27 will show.

The following day, the Commerce Department may report that sales of new houses in October were little changed from the previous month, when they reached the highest level since a government tax credit temporarily boosted demand in April 2010.

Housing shares have outperformed equipment-maker stocks as gains in construction contribute more to growth. The Standard & Poor’s Supercomposite Homebuilding Index is up 19.6 percent since June 29, compared with an 8.8 percent gain for the S&P Supercomposite Machinery Index over the same period.

                  Bloomberg Survey

                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
Durables Orders MOM%     11/27      Oct.      9.8%     -0.8%
Durables Ex-Trans MOM%   11/27      Oct.      2.0%     -0.6%
Cap Goods Core MOM%      11/27      Oct.      0.2%     -0.5%
Case Shiller Monthly MOM 11/27     Sept.      0.5%      0.4%
Case Shiller Monthly YOY 11/27     Sept.      2.0%      2.9%
Consumer Conf Index      11/27      Nov.      72.2      73.0
New Home Sales ,000’s    11/28      Oct.      389       390
GDP Annual QOQ%          11/29      3Q S      2.0%      2.8%
Pers Inc MOM%            11/30      Oct.      0.4%      0.2%
Pers Spend MOM%          11/30      Oct.      0.8%      0.1%

To contact the reporter on this story: Alex Kowalski in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

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