Consumer Spending Probably Helped Lift U.S. Growth
The economy in the U.S. probably expanded at a faster pace in the third quarter as a gain in consumer spending cushioned against a slump in business investment, economists said before a report today.
Gross domestic product rose at a 1.8 percent annual rate after growing at a 1.3 percent pace the prior quarter, according to the median forecast of 86 economists surveyed by Bloomberg. It would be the first back-to-back readings lower than 2 percent since the U.S. was emerging from the recession in 2009.
A housing rebound is helping mend Americans’ finances and confidence, indicating the pickup in demand for expensive items such as automobiles can be sustained. In contrast, manufacturers like 3M Co. (MMM) and Caterpillar Inc. (CAT) have cut forecasts as concern about the so-called fiscal cliff and cooling overseas sales weigh on an expansion that Federal Reserve policy makers this week called “moderate.”
“The consumer is keeping the economy afloat,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, and a former researcher for the Fed. “Capital spending looks very weak. The economy is making slow progress but at least it’s expanding.”
Today’s report will be the last reading on the state of the economy before Americans go to the polls next month. Employment and growth are central themes in the campaigns of President Barack Obama and Republican challenger Mitt Romney ahead of the Nov. 6 elections.
The jobs data for October are scheduled to be released by the Labor Department on Nov. 2. Payrolls rose 114,000 in September after climbing 142,000 in August, while the unemployment rate dropped to a three-year low of 7.8 percent from 8.1 percent.
The Commerce Department will release the GDP data at 8:30 a.m. in Washington. Economists’ estimates for GDP, the value of all goods and services the U.S. produced, ranged from 0.9 percent to 3.1 percent.
A report at 9:55 a.m. may show consumer sentiment climbed this month to a five-year high. The Thomson Reuters/University of Michigan final sentiment reading jumped to 83 in October, the highest level since September 2007, from 78.3 the prior month, according to the Bloomberg survey median.
Fed policy makers highlighted the advance in consumer spending and slowdown in business investment in the Oct. 24 statement after their meeting. They pledged to keep buying $40 billion in mortgage-backed securities a month in a bid to spur the three-year expansion and reduce joblessness.
“Economic activity has continued to expand at a moderate pace,” the Fed said. “Growth in employment has been slow, and the unemployment rate remains elevated.”
The GDP data may show consumer spending grew at a 2.1 percent annual rate last quarter after a 1.5 percent pace from April through June, economists predicted.
Retail sales in September and August had the best back-to- back showing since late 2010 as shoppers snapped up goods from cars to Apple Inc.’s iPhones. Target Corp. (TGT), the second-biggest U.S. discounter, was among chains topping analysts’ estimates for same-store sales last month.
Cars and light trucks sold at a 14.9 million annual pace in September, the strongest since March 2008, according to Ward’s Automotive Group. Chrysler Group LLC and General Motors Co. (GM) reported gains.
Record-low mortgage rates are stoking demand for housing, another area of the economy that’s improving. Firming home prices and a drop in joblessness may further boost Americans’ confidence and spending.
One area of mounting concern is business investment and manufacturing. Data yesterday showed orders for non-defense capital goods excluding aircraft, a proxy for future corporate spending on items like computers, engines and communications gear, stagnated in September and shipments fell.
“Turning to 2013, the clarity on the macro side is still murky,” Honeywell Chief Executive Officer Dave Cote said on an Oct. 19 conference call with analysts. “There’s nothing out there to suggest anything but continued conservative planning at best.”
Caterpillar, the world’s largest maker of construction and mining equipment, this week projected sales growth for 2013 that would be slower than the prior three years. Production has been trimmed, with temporary shutdowns and dismissals to work through excess stockpiles, the Peoria, Illinois-based company said.
Others who lowered profit projections include 3M, the manufacturer of products ranging from Scotch tape to dental braces, and DuPont Co., the most valuable U.S. chemical maker, which also announced 1,500 job cuts.
Investors are growing concerned about the outlook. The Standard & Poor’s 500 Index (SPX) dropped on Oct. 24 to the lowest level in seven weeks. It closed yesterday at 1,412.97, up 0.3 percent.
In addition to slowing growth from Europe to Asia that will limit exports, the U.S. is approaching more than $600 billion in tax increases and spending cuts set to take effect early next year unless Congress acts.
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