Autos Probably Led Consumer Spending Gain: U.S. Economy Preview

Consumer spending in the U.S. probably climbed in May by the most in three months, led by growing demand for automobiles, economists said before a report this week.

The projected 0.3 percent gain in purchases would follow a 0.2 percent fall in April, the first drop in a year, according to the median forecast of 63 economists surveyed by Bloomberg ahead of Commerce Department data on June 27. Other reports may show household confidence held near multiyear highs, housing continued to strengthen and orders for durable goods grew.

Car dealers, restaurants and furnishing retailers such as Pier 1 Imports Inc. are reporting improved sales as the housing rebound and gain in stocks boost shoppers’ spirits and finances. Federal Reserve policy makers last week said they are betting the economy will pick up and unemployment will fall, opening the way for central bankers to trim bond purchases later this year.

“The economy continues to get better, the housing market is getting better and that’s spilling over into consumer confidence,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. “They’re spending more and that’s keeping growth at a modest to moderate pace.”

The Commerce Department’s spending report will also show incomes grew 0.2 percent last month after being unchanged in April, according to the Bloomberg survey.

Home Prices

Income gains are being supplemented by the recovery in home prices and sales to help boost household finances and spending. The S&P/Case-Shiller index of home values for 20 cities probably rose 10.6 percent for the year ended April after a 10.9 percent increase in March that was the biggest year-over-year advance since 2006, according to the median forecast in a Bloomberg survey of economists before a June 25 report.

Figures from the Commerce Department the same day will show sales of new homes rose to a 460,000 annualized pace in May, the highest since July 2008, according to the survey median.

“Housing has a lot of positive knock-on effects,” adding jobs and boosting consumer spending, said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “As home prices come back, that will contribute to the wealth effect and people will be willing to spend again.”

Sales at Pier 1, a purveyor of furniture and home merchandise based in Fort Worth, Texas, grew 9.3 percent in the quarter ended June 1 from the same time last year, with customers buying more full-priced items and shopping online, said President and Chief Executive Officer Alex Smith.

Growing Sales

“If the economy stays broadly as it is, then our margins are going to stay broadly where they are,” Smith said on a June 20 earnings call. “I don’t think we’re going to get any major surprises.”

Improving home construction is also giving a lift to auto manufacturers, which are seeing an increase in U.S. sales of trucks and vans. Cars and light trucks sold at a 15.2 million annualized rate in May, a 2.4 percent increase from the prior month, according to industry figures.

General Motors Co. will begin marketing a redesigned line of pickups this year. Ford Motor Co., Chrysler Group LLC and Daimler AG are introducing fuel-efficient work vans to the U.S. market in response to a rebound in residential construction.

Nonetheless, it may take a few months to determine whether the recent turmoil in financial markets will curb homebuyers’ enthusiasm.

Markets were challenged last week after Fed Chairman Ben S. Bernanke said the economy may soon be strong enough for the central bank to begin slowing the pace of record bond purchases. The program will probably end by the middle of next year when policy makers project the jobless rate, which is currently at 7.6 percent, will drop to 7 percent.

Shares Slide

Stocks slumped and yields soared after the Fed’s announcement. The Standard & Poor’s 500 Index climbed 0.3 percent to close at 1,592.43 on June 21, trimming the decline for the week to 2.1 percent. The yield on the benchmark 10-year note jumped to 2.53 percent late on June 21 from 2.13 percent a week earlier.

The previous rally, which took the S&P 500 to a record close of 1,669.16 on May 21, contributed to the recent improvement in confidence.

The Thomson Reuters/University of Michigan sentiment index fell to 83 in June, just off the six-year high of 84.5 reached in May, economists project the final reading for the month will show on June 28. A preliminary report earlier this month came in at 82.7.

Consumer Confidence

A similar measure from the Conference Board, a New York-based research group, will decline to 75 this month from a five-year high of 76.2 reached in May, according to the Bloomberg survey median ahead of the June 25 report.

Other data this week will show bookings for appliances, vehicles, engines, electronics and other durable goods grew 3 percent in May after rising 3.5 percent the prior month, economists project a June 25 report from the Commerce Department will show.

Also this week, the Commerce Department’s third estimate of growth in the first quarter will be released on June 26. Gross domestic product grew at a 2.4 percent annualized pace from January through March, unchanged from the prior estimate, according to economists surveyed.

                        Bloomberg Survey

                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
Durables Orders MOM%      6/25      May       3.5%      3.0%
Durables Ex-Trans MOM%    6/25      May       1.5%      0.0%
Cap Goods Core MOM%       6/25      May       1.2%      0.5%
Cap Goods Core Ship MOM   6/25      May      -1.3%      0.8%
Case Shiller Monthly MOM  6/25     April      1.1%      1.2%
Case Shiller Monthly YOY  6/25     April     10.9%     10.6%
Case Shiller Index        6/25     April     148.7     152.8
FHFA HPI MOM%             6/25     April      1.3%      1.1%
New Home Sales ,000’s     6/25      May       454       460
New Home Sales MOM%       6/25      May       2.3%      1.3%
Richmond Fed Index        6/25      June       -2        1
Consumer Conf Index       6/25      June      76.2      75.0
GDP Annual QOQ%           6/26      1Q T      2.4%      2.4%
Personal Consump. QOQ%    6/26      1Q T      3.4%      3.4%
GDP Prices QOQ%           6/26      1Q T      1.1%      1.1%
Core PCE Prices QOQ%      6/26      1Q T      1.3%      1.3%
Pers Inc MOM%             6/27      May       0.0%      0.2%
Pers Spend MOM%           6/27      May      -0.2%      0.3%
PCE Deflator MOM%         6/27      May      -0.3%      0.1%
PCE Deflator YOY%         6/27      May       0.7%      1.1%
Core PCE Prices MOM%      6/27      May       0.0%      0.1%
Core PCE Prices YOY%      6/27      May       1.1%      1.1%
Initial Claims ,000’s     6/27     22-Jun     354       345
Cont. Claims ,000’s       6/27     15-Jun     2951      2953
BCCI                      6/27     24-Jun    -29.4      n/a
Pending Homes MOM%        6/27      May       0.3%      1.0%
Pending Homes YOY%        6/27      May      13.9%     11.5%
Chicago PM Index          6/28      June      58.7      55.0
U of Mich Conf. Index     6/28     June F     82.7      83.0
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