Consumer Spending Probably Climbed in July: U.S. Economy Preview

Consumer spending probably rose for a third consecutive month in July as improvements in the housing and labor markets helped underpin the biggest part of the economy, economists said before a report this week.

Purchases of goods and services increased 0.3 percent last month after a 0.5 percent advance in June, according to the median forecast in a Bloomberg survey of 59 economists before Commerce Department figures on Aug. 30. Another report may show a pickup in orders for big-ticket items other than transportation equipment.

Rising home sales and prices this year, along with more jobs, are spurring receipts at companies such as Home Depot Inc. and Lowe’s Cos. as demand for appliances and home-improvement merchandise improves. Consumer spending, which accounts for about 70 percent of the economy, will help sustain an expansion awaiting pickups in manufacturing and global markets.

“We’re seeing a little more weight from the consumer and the housing sector,” said Michael Brown, an economist for Wells Fargo Securities LLC in Charlotte, North Carolina. At the same time, “we’re still in a very uncertain global economic environment.”

The Commerce Department’s figures at the end of the week may also show personal income increased 0.2 percent in July after a 0.3 percent gain a month earlier.

Faster job gains would help drive the wage increases needed to boost household purchases. Spending in the second quarter climbed at a 1.8 percent annualized rate after a 2.3 percent pace in the first three months of the year, Commerce Department figures showed last month.

Third Quarter

Purchases will rise at a 2.2 percent rate this quarter and 2.4 percent in the final three months of the year, according to a Bloomberg survey of economists from Aug. 2 to Aug. 6.

Higher home prices, which have boosted household net worth, are propelling demand for washers, dryers and other expensive items that Americans were reluctant to buy in the housing downturn, Lowe’s Chief Executive Officer Robert Niblock said last week.

“Our second-quarter sales performance exceeded our expectations, due in part to strong demand for appliances and recovery in our garden department,” Carol B. Tome, chief financial officer at Atlanta-based Home Depot, said on an Aug. 20 earnings call.

Investors have taken note of the improving outlook. The Standard & Poor’s GICS Consumer Discretionary Sector Index, which encompasses companies that tend to be the most sensitive to swings in the economy including Home Depot, has climbed 7.2 percent since April 30. The S&P 500 Index is up 4.1 percent over the same period.

Home Prices

A pickup in housing demand amid a limited supply is driving up prices, a report on Aug. 27 is projected to show. The S&P/Case-Shiller index of home prices in 20 cities climbed 12.1 percent in June from the same month last year after a 12.2 percent advance in the 12 months ended May that was the biggest since March 2006, according to the Bloomberg survey median.

A report from the Commerce Department tomorrow is projected to show orders for such big-ticket goods, excluding demand for transportation equipment that is volatile month to month, increased 0.5 percent in July after a 0.1 percent decline a month earlier, according to the Bloomberg survey median.

Fewer commercial aircraft bookings depressed overall orders, which economists forecast fell 4 percent last month, the first decline since March.

GDP Revision

Revised figures from the Commerce Department on Aug. 29 may show the economy grew at a 2.2 percent annualized rate in the second quarter, compared with an initial estimate of 1.7 percent. Gross domestic product has increased an average 2.2 percent following the end of the last recession in June 2009.

The GDP estimate is the second of three for the quarter, with the final release scheduled for September when more information becomes available.

Rising mortgage rates that are beginning to slow the rebound in housing may be weighing on consumer sentiment as well, a pair of reports may show.

The Conference Board’s confidence index on Aug. 27 is projected to decline for a second month in August. The Thomson Reuters/University of Michigan final sentiment index, released on Aug. 30, probably declined this month from a six-year high.

The average rate on a 30-year fixed home loan climbed to a two-year high of 4.58 percent in the week ended Aug. 22, according to Freddie Mac. The benchmark rate for home financing has climbed from a record-low 3.31 percent in November.

                         Bloomberg Table

                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
Durables Orders MOM%      8/26      July      3.9%     -4.0%
Durables Ex-Trans MOM%    8/26      July     -0.1%      0.5%
Cap Goods Core MOM%       8/26      July      0.9%      0.5%
Cap Goods Core Ship MOM   8/26      July     -0.9%      0.3%
Dallas Fed Monthly MOM%   8/26      Aug.      4.4%      3.9%
Case Shiller Monthly MO   8/27      June      1.1%      1.0%
Case Shiller Monthly YO   8/27      June     12.2%     12.1%
Case Shiller Monthly In   8/27      June     156.1     159.4
Consumer Conf Index       8/27      Aug.      80.3      79.0
Richmond Fed Index        8/27      Aug.      -11        0
Pending Homes MOM%        8/28      July     -0.4%      0.0%
GDP Annual QOQ%           8/29      2Q S      1.7%      2.2%
Personal Consump. QOQ%    8/29      2Q S      1.8%      1.8%
GDP Prices QOQ%           8/29      2Q S      0.7%      0.7%
Core PCE Prices QOQ%      8/29      2Q S      0.8%      0.8%
Initial Claims ,000’s     8/29     24-Aug     336       330
Cont. Claims ,000’s       8/29     17-Aug     2999      2990
Pers Inc MOM%             8/30      July      0.3%      0.2%
Pers Spend MOM%           8/30      July      0.5%      0.3%
PCE Deflator MOM%         8/30      July      0.4%      0.2%
PCE Deflator YOY%         8/30      July      1.3%      1.4%
Core PCE Prices MOM%      8/30      July      0.2%      0.2%
Core PCE Prices YOY%      8/30      July      1.2%      1.2%
Chicago PM Index          8/30      Aug.      52.3      53.0
U of Mich Conf. Index     8/30     Aug. F     80.0      80.5