BL: Spending Probably Slowed, Confidence Sank: U.S. Economy Preview
By Courtney Schlisserman
May 25 (Bloomberg) -- The pace of consumer spending in the U.S. probably slowed as property values and confidence sank, economists said before reports this week.
Purchases were up 0.2 percent in April after increasing 0.4 percent the prior month, according to the median estimate of economists surveyed by Bloomberg News before the Commerce Department's May 30 report. Other figures may show home prices declined at a faster rate and consumers were the most pessimistic in at least 15 years.
The tax-rebate checks being sent by the government will only provide a temporary boost to spending as smaller wage gains, declining home equity and soaring fuel costs keep eroding Americans' buying power. Another report is projected to show that companies are also retrenching.
``We continue to expect sluggish growth through next year as the economy battles several shocks,'' said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York. ``Falling home prices, along with tight credit, rising energy prices and a weaker labor market should curb consumer spending.''
Households will spend about $90 billion more this year on gasoline if fuel prices remain at current levels, according to a forecast by economists at Credit Suisse Holdings in New York. That will consume about 80 percent of the more than $110 billion in rebate checks the government is sending out.
Incomes rose 0.2 percent in April, the smallest gain in six months, the Commerce data on spending may also show.
Ex-Food, Fuel
The report's inflation figures may show prices outside of food and fuel remain tame. A gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, increased 0.1 percent in April after a 0.2 percent gain the prior month, the survey showed.
``Costs are rising faster than we've seen in more than a dozen years,'' McDonald's Corp. Chief Operating Officer Ralph Alvarez told reporters May 22. ``In today's environment, we believe strongly that you cannot pass on all your costs.''
Still, the jump in fuel expenses is one reason consumers are becoming more pessimistic. The Conference Board's confidence measure fell to 60 this month, the lowest reading since August 1993, according to the survey median. A similar index from Reuters/University of Michigan, to be released May 30, may have decreased to the lowest level since June 1980.
Fed Forecasts
Federal Reserve officials last month projected the economy would grow about a percentage point less this year then they anticipated in January, according to minutes of their April meeting released last week. They also estimated a higher rate of inflation than previously thought.
Officials expected ``much weaker'' growth in 2008 than last year, ``owing primarily to a continued contraction of housing activity, a reduction in the availability of household and business credit and rising energy prices,'' the minutes said.
A glut of unsold properties is pushing prices lower. The S&P/Case-Shiller home-price index, scheduled for release May 27, may show prices in 20 U.S. metropolitan areas fell 14.2 percent in March from a year earlier. The decrease would be the biggest since the group started keeping year-over-year records in 2001.
Commerce's report on sales of new houses, due the same day, may show purchases fell to an almost 17-year low pace of 520,000 in April.
Home Sales
Sales of new homes are viewed as a leading indicator of the market because they are tabulated when a contract is signed. Existing-home sales reflect contract closings, which typically come a month or two later.
Growth in the first three months of the year may have been better than first estimated even as the economic outlook dims. The economy expanded at a 0.9 percent annual pace in the first quarter, up from the Commerce Department's 0.6 percent estimate issued last month, according to the survey median.
The improvement reflected a bigger narrowing of the trade deficit than initially projected. The government's update is due May 29.
``All told, the news will be one that shows an economy growing sluggishly, but not contracting,'' said Jonathan Basile, an economist at Credit Suisse. ``Exports have been a positive force for growth, but there's been a lot of drag coming from housing and now it looks like consumer spending and business spending is slowing.''
Orders for durable goods fell 1.5 percent in April, the third decline in four months, economists project figures from Commerce on May 28 may show. The drop signals that slowing demand and rising costs are prompting a pullback in business investment and manufacturing.
Ford Motor Co. on May 22 abandoned its target of turning a profit next year and said it is cutting North American vehicle production for the rest of 2008. U.S. sales at the company fell 9.8 percent this year through April and the outlook worsened in the first half of May, Chief Executive Officer Alan Mulally told analysts and investors.
Bloomberg Survey
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Release Period Prior Median
Indicator Date Value Forecast
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Case Shiller Quarterly 5/27 1Q -8.9% -12.5%
Case Shiller Monthly YO 5/27 March -12.7% -14.2%
Consumer Conf Index 5/27 May 62.3 60.0
New Home Sales ,000's 5/27 April 526 520
New Home Sales MOM% 5/27 April -8.5% -1.1%
Durables Orders MOM% 5/28 April -0.3% -1.5%
Durables Ex-Trans MOM% 5/28 April 0.9% -0.5%
GDP Annual QOQ% 5/29 2Q P 0.6% 0.9%
Initial Claims ,000's 5/29 25-May 365 370
Cont. Claims ,000's 5/29 18-May 3073 3080
Pers Inc MOM% 5/30 April 0.3% 0.2%
Pers Spend MOM% 5/30 April 0.4% 0.2%
Core PCE Prices MOM% 5/30 April 0.2% 0.1%
Core PCE Prices YOY% 5/30 April 2.1% 2.1%
Chicago PM Index 5/30 May 48.3 48.5
U of Mich Conf. Index 5/30 May F 59.5 59.5
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To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net
Last Updated: May 25, 2008 08:30 EDT
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