U.S. Economy: Spending Declines Less Than Forecast (Update1)
By Bob Willis and Courtney Schlisserman
Dec. 24 (Bloomberg) -- Consumer spending in the U.S. fell less than forecast as cheaper gasoline left Americans with more cash, while jobless claims climbed to a 26-year high, signaling purchases will keep sliding into 2009.
Spending dropped 0.6 percent in November, and rose for the first time in six months after accounting for inflation, the Commerce Department said today in Washington. First-time unemployment benefit claims jumped to 586,000, and durable-goods orders declined less than anticipated, other reports showed.
The deteriorating job market means consumers will probably further rein in spending; economists including those at Morgan Stanley estimate more than 400,000 people will lose their jobs this month. The outlook forced Sears Holdings Corp., the largest U.S. department-store company, earlier this month to abandon its earnings forecast for the rest of the year.
“The economy continues to struggle and unfortunately the first half of 2009 does not look very good,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York. “We look for a further contraction and a continued acceleration in the pace of layoffs.”
Gasoline prices fell by a total of 50 percent in October and November, and discounts by retailers from Toys “R” Us Inc. to Wal-Mart Stores Inc. helped prevent a bigger drop in purchases last month. Today’s Commerce report also showed that the gain in spending adjusted for inflation was the biggest in almost two years.
Spending Outlook
“The increase in real spending is unlikely to be sustained with the job losses we are seeing,” said Benjamin Reitzes, an economist at BMO Capital Markets in Toronto. The gain last month “was more a technicality based on the drop in gasoline prices,” he said.
Stocks were little changed after today’s reports, rising later in the day, and the dollar fell. The Standard & Poor’s 500 Stock Index closed up 0.6 percent at 868.15, benchmark 10-year note yields were 2.18 percent at 2:09 p.m. in New York, little changed from late yesterday, and the dollar lost 0.5 percent against the euro to $1.40.
A separate Commerce report showed orders for durable goods in November fell 1 percent, after an 8.4 percent decrease in October that was bigger than previously reported. Excluding a slump in transportation gear, orders for goods designed to last several years unexpectedly increased.
Capital Goods
Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, increased 4.7 percent, the most since September 2006, after a 6.6 percent slump in October. Shipments of those items, used in calculating gross domestic product, rose 0.2 percent.
“Orders were so down in the previous months that there’s probably a little payback for that,” Robert Stein, senior economist at First Trust Advisors in Lisle, Illinois, said before the report.
Today’s Labor Department report showed that the four-week moving average of claims, a less volatile measure, also was the highest since 1982, at 558,000 for the week to Dec. 20. Initial claims were projected to increase to 558,000, according to the median of 32 forecasts in a Bloomberg News survey.
The number of people staying on benefit rolls fell to 4.37 million in the week ended Dec. 13 from 4.387 million.
Rising joblessness contributed to a drop in personal income last month. The Commerce figures showed income fell 0.2 percent in November after being unchanged the prior month.
Hit to Income
“Given the further increase in jobless claims,” wage and salary income “is likely to further decelerate in the near term,” Deutsche’s Riccadonna wrote in a note to clients.
The drop in consumer spending last month extended declines to a record fifth consecutive decline, the Commerce Department said. Economists forecast unadjusted spending would fall 0.7 percent, according to the median of 64 estimates in a Bloomberg News survey.
Today’s report also confirmed inflation is retreating as demand wanes. Prices plunged 1.1 percent, also the biggest since records began in 1992. The gauge increased 1.4 percent from November 2007, the smallest gain in six years. The Fed’s preferred price measure, which excludes food and fuel, was unchanged for the second consecutive month, the first time that’s happened since 1999.
Gasoline Price
The average price of unleaded regular gasoline at the pump fell by $1 to $2.11 in November from the prior month, according to AAA, leading the drop in overall prices.
The decrease in spending pushed the savings rate up to 2.8 percent from 2.4 percent in October. A positive rate suggests consumers are restraining spending to boost savings.
Even after the bump in November sales, retailers are concerned about the holiday shopping season, which brings in one- third or more of annual revenue. The International Council of Shopping Centers and Goldman Sachs Group Inc. said yesterday that November-December sales may fall as much as 2 percent. The ICSC had previously projected a drop of as much as 1 percent.
“Given the current economic and retail environment, we will carefully evaluate alternatives that provide financial flexibility in the near-term,” Sears’s interim Chief Executive Officer W. Bruce Johnson said in a statement.
Consumer spending dropped at a 3.8 percent annual pace in the third quarter, the biggest plunge since 1980, revised Commerce figures showed yesterday. The economy shrank 0.5 percent. Economists surveyed by Bloomberg forecast the economy will contract through the first half of 2009.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
Last Updated: December 24, 2008 14:11 EST
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