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Consumer Spending Probably Little Changed: U.S. Economy Preview

Consumer Spending Probably Little Changed
Shoppers carry their purchases while crossing the street in the SOHO neighborhood of New York. Photographer: Victor J. Blue/Bloomberg

Consumer spending was probably little changed in April as Americans pocketed the savings from lower gasoline prices and smaller utility bills, economists said before a report this week.

The projected unchanged reading in purchases would follow a 0.2 percent rise in March, according to the median of 69 forecasts in a Bloomberg survey before Commerce Department data due May 31. Other reports may show home values jumped by the most in seven years, and more Americans signed contracts to buy previously owned houses.

The rebound in housing and cheaper fuel costs are shoring up household finances and confidence, making consumers more willing to keep shopping in the face of a higher payroll tax. Bigger gains in employment and wages are the missing elements that would ensure the world’s largest economy will better weather the federal budget cuts that took effect in March.

“Consumers are showing more resilience than we’d have anticipated,” said Jonathan Basile, a U.S. economist at Credit Suisse in New York. “Demand for homes will keep improving, and prices should appreciate quicker because the supply is so low.”

The Commerce Department’s consumer-spending report may also show incomes grew 0.1 percent last month following a 0.2 percent rise in March, according to the Bloomberg survey median.

A drop in the number of people filing claims for jobless benefits is signaling a waning in dismissals that will lay the groundwork for hiring and faster wage growth. Ford Motor Co. said on May 22 that it is adding factory workers as rising sales prompt the second-largest U.S. automaker to boost capacity to build 200,000 more vehicles annually in North America.

Auto Sales

Americans are replacing older vehicles, taking advantage of low borrowing costs. Cars and light trucks sold at a 14.9 million annual rate in April, after a 15.2 million pace the prior month, data from Ward’s Automotive Group showed. The average for the first quarter was 15.3 million, the strongest since the same period in 2008 and a sign the longer-term outlook remains positive.

A drop in receipts at services stations, reflecting lower gasoline prices, probably restrained last month’s spending total, economists said.

The Commerce Department’s price index tied to spending, the gauge tracked by Federal Reserve policy makers, dropped 0.2 percent in April as fuel costs retreated, according to the Bloomberg survey median. It would mark the biggest decline in almost a year.

Inflation Adjusted

Adjusting the spending forecast for the drop in prices would yield a 0.2 percent increase in so-called real purchases, which are the figures used to calculate gross domestic product, following a 0.3 percent gain in March.

Consumers also probably had smaller utility bills last month as the weather turned warmer following the coolest March since 2002, also helping to curb total spending.

Households are being underpinned by gains in equity and housing markets. The Standard & Poor’s 500 Index is up 15.7 percent this year through May 24 and reached a record on May 21.

Starting a week shortened by tomorrow’s Memorial Day holiday, a May 28 report may show the S&P/Case-Shiller index of property values in 20 cities rose 1 percent in March after a 1.2 percent gain the prior month, economists predicted in the Bloomberg survey. That would put home prices up 10.2 percent from a year earlier, the biggest jump since April 2006.

Confidence Improving

Americans’ moods echo the improvement in their finances and the economic outlook, two other reports may show. The Conference Board’s consumer confidence index, due May 28, probably climbed to a six-month high in May. The Thomson Reuters/University of Michigan sentiment gauge, to be released on May 31, likely surged to the highest level in almost six years.

The index of pending home sales increased 1.5 percent in April, matching the gain the prior month, economists forecast ahead of a report from the National Association of Realtors due May 30.

The same day, revised data from the Commerce Department will show the economy grew at a 2.5 percent annualized rate in the first quarter, the same as estimated last month, economists said. Consumer spending probably expanded faster than previously projected, the figures may also show.

                         Bloomberg Survey
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
Case Shiller Monthly MO   5/28     March      1.2%      1.0%
Case Shiller Monthly YO   5/28     March      9.3%     10.2%
Consumer Conf Index       5/28      May       68.1      71.0
GDP Annual QOQ%           5/30      1Q S      2.5%      2.5%
Personal Consump. QOQ%    5/30      1Q S      3.2%      3.3%
Initial Claims ,000’s     5/30     25-May     340       340
Pending Homes MOM%        5/30     April      1.5%      1.5%
Pers Inc MOM%             5/31     April      0.2%      0.1%
Pers Spend MOM%           5/31     April      0.2%      0.0%
PCE Deflator MOM%         5/31     April     -0.1%     -0.2%
PCE Deflator YOY%         5/31     April      1.0%      0.8%
U of Mich Conf. Index     5/31     May F      83.7      83.7

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