Consumer spending in the U.S. climbed in February by the most in five months as incomes rose, signaling an improving job market is spurring demand, according to a Bloomberg report.
Household purchases, which account for about 70% of the economy, gained 0.7% after a 0.4% advance the prior month that was bigger than previously estimated, a Commerce Department report showed today in Washington. The median estimate in a Bloomberg survey of 78 economists called for a 0.6% rise. Incomes increased 1.1%, more than projected, sending the saving rate up from a five-year low.
Labor market progress and an increase in household wealth linked to rising home values and stocks are helping Americans cushion the fallout of higher payroll taxes and costlier fuel. Strength in purchases is one reason economists project the economy picked up this quarter after slowing to a 0.4 percent annual rate in the final three months of 2012.
“The economy is in a very good place right now ahead of the fiscal restraint,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “This recovery is sustainable. Consumers are in the driver’s seat.”
Stock markets in the U.S. were closed today for the Good Friday holiday.
Projections for spending ranged from gains of 0.3% to 0.9%. The January reading was previously reported as an increase of 0.2%.
Consumer spending in the U.S. climbed more than forecast in September, a sign the biggest part of the economy was picking up as the quarter drew to a close.
Bloomberg reported that household purchases, which account for about 70% of gross domestic product, rose 0.8%, the most since February, after advancing 0.5% in August, a Commerce Department report showed today (Oct. 29) in Washington. Incomes climbed 0.4%, the most since March.
The acceleration in spending may help the world’s largest economy overcome a slowdown in exports and business investment as global growth slackens and concern mounts about the so-called fiscal cliff. At the same time, a drop in saving to finance purchases indicates bigger gains in employment are required to provide the income needed to sustain spending.
“The strength in September gives consumer spending a good lift for the fourth quarter,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn. “The housing market seems to have turned. Consumers are clearly feeling better and are going out and spending a bit more.”
Equity markets in the U.S. were closed today as Hurricane Sandy barreled toward New York City. Risks posed by the storm, expected to come ashore late today in southern New Jersey and potentially affect 60 million people, were deemed too great to require workers to travel.
Consumer spending in the U.S. stagnated in June as labor-market weakness prompted Americans to use the biggest gain in incomes in three months to build savings.
Bloomberg reported that household purchases, which make up 70% of the economy, were unchanged last month after a 0.1% decline in May, a Commerce Department report showed today in Washington.
The median estimate in a Bloomberg News survey of economists called for a 0.1% rise. Incomes climbed 0.5%, lifting the saving rate to 4.4%, the highest in a year.
Americans may be growing less pessimistic about job prospects later in the year, with another report today (July 31)showing consumer confidence rose unexpectedly for the first time in five months. Federal Reserve policy makers meeting today and tomorrow may wait for more employment data before deciding whether action is needed to boost an economy that’s slowed for two straight quarters.
“There’s been some back-tracking in the labor market so consumers are choosing to save the income rather than spend it,” said Julia Coronado, chief economist for North America at BNP Paribas in New York, who correctly projected the stagnation in purchases. “The third quarter will be pretty subdued.”
Americans increased their spending more slowly in March, suggesting some are worried that their paychecks aren’t growing fast enough.
The Commerce Department said today (April 30) that consumer spending increased just 0.3% last month after a 0.9% gain in February, The Associated Press reported. Income grew 0.4% following a 0.3% gain in February. But after-tax income when adjusted for inflation increased just 0.2% in March. The gain followed two months of declines.
Consumer spending, which accounts for 70% of economic growth, rose 2.9% in the January-March quarter — the fastest pace in more than a year. The increase was a bright spot in an otherwise weak first quarter for economic growth.
But Paul Dales, senior U.S. economist at Capital Economics, noted that stronger spending in January and February drove the quarterly increase. And consumers spent more while saving less, which suggests they cannot sustain their spending pace without better pay.
“Real incomes will need to grow at a faster rate to prevent consumption growth from slowing,” said Dales. He noted that Friday’s report on April hiring is a crucial sign of where the economy is headed.
The government reported Friday that the overall economy grew at an annual rate of 2.2% in the January-March quarter. That’s down from 3% annual growth in the October-December period. The weakness mainly reflected government budget-cutting and weaker business investment.
In March, consumers spent 0.9% more on non-durable goods, such as clothing. Spending on durable goods, such as cars and appliances, fell 0.3%. Spending on services such as utilities and rent was mostly flat.
An inflation gauge tied to consumer spending rose a modest 0.2% in March. Over the past 12 months, the index is up 2.1%, just above the Federal Reserve’s 2% inflation target
Some economists worry consumers can’t keep spending as freely as they did in the first three months of this year without bigger pay raises. After-tax income rose just 0.6% in the first three months compared with a year earlier. That was the smallest pay increase in two years.
Americans spent on a wide range of goods and services in March for the third straight month, suggesting the U.S. economy grew somewhat faster than expected in the first quarter.
MarketWatch reported that consumers increased spending in virtually every category, whether at online stores or traditional bricks-and-mortar retailers. Automobiles, electronics and appliances, building materials and clothing stores saw the biggest gains.
Retail sales climbed 0.8% in March, the Commerce Department said, following revised increases of 1.0% in February and 0.7% in January. February’s gain was revised down slightly and January was revised up a tick.
Consumer spending accounts for as much as 70% of U.S. economy, so the recent upsurge in spending likely means the nation’s growth in gross domestic product for the first quarter will be faster than expected. Before the latest retail report, economists polled by MarketWatch forecast that quarterly GDP would increase by 2.3%.
While sales at resurgent automobile companies jumped during the first quarter, other retailers also benefited. Sales excluding the U.S. auto sector were still up a sharp 0.8% last month.
Economists surveyed by MarketWatch expected retail sales to rise by 0.4% overall, or by 0.6% excluding the automobile sector.
Spending has been fueled by an acceleration in U.S. hiring since last fall. With more people working, there’s more money to spend. Retailers have also been helped by one of the warmest winters in decades.
Whether consumers can continue to spend at their current pace remains to be seen, however, as inflation-adjusted wages have actually fallen over the past year, and consumers are saving somewhat less.
U.S. consumers boosted their spending in February by the most in seven months. But Americans’ income barely grew, and the saving rate fell to its lowest point in more than two years.
The Associated Press reported that the Commerce Department said Friday (March 30)that consumer spending rose 0.8% last month. Income grew 0.2%, matching January’s weak increase. And when taking inflation into account, income after taxes fell for a second straight month.
Still, consumers are spending more after the best three-month hiring stretch in two years. Paul Dales, an economist at Capital Economics, suggested that estimated annual growth for the economy in the current January-March quarter may be revised up — to around 2.5%, compared with earlier estimates of about 2 percent.
Dales cautioned, though, that at some point, consumers won’t be able to draw further on their savings. Further job gains are needed to boost consumers’ income.
Some of the higher spending last month reflected surging gas prices. But consumers spent more on other goods and services, too. After excluding inflation, which was due mainly to gas prices, spending rose a solid 0.5%.
Consumer spending drives 70% of economic activity.
Americans might complain about higher gas prices, but new government data show that hasn’t stopped them from driving to the mall, according to the Washington Post.
The Commerce Department reported Tuesday (March 12) that retail sales climbed 1.1% in February compared with the previous month. Consumers pulled out their wallets for new cars and clothes, electronics and sporting equipment despite spending 3.3% more at gas stations. The results boosted estimates of how fast the economy is growing, particularly as it comes on the heels of data showing a strengthening job market.
“Consumers are holding their own and have some extra cushion to withstand higher gasoline prices,” said Chris G. Christopher Jr., U.S. economist for IHS Global Insight.
The strong spending numbers offer a counterpoint to the public anger over rising prices at the pump.
What those pump costs mean for the economy has become a central question of the presidential campaign. A recent Washington Post-ABC News poll found that 65% of Americans are unhappy with the way President Obama is handling gas prices, driving down his overall approval rating. Republicans have seized on the sentiment to critique the president’s environmental and foreign policies.
Generally, economists worry that higher fuel costs will drive up inflation and leave households with less money to spend on other items. That can wind up depressing the nation’s gross domestic product because consumers are the backbone of the economy, accounting for roughly two-thirds of GDP.
But so far at least, those fears have not materialized. Sales in February rose in almost every category of retail. Automakers confirmed what had been reported as a strong month with a 1.6% spike in sales. And analysts were particularly heartened by increases in discretionary spending in sectors such as clothing, which was up 1.8% from the previous month. Even long-struggling department stores showed a hefty 1.5% gain.
A summer of modest economic growth is helping dispel lingering fears that another recession might be near. Whether the strength can be sustained, though, is far from clear.
The Associated Press reported that buoyed by a resurgent consumer and strong business investment, the economy expanded at an annual rate of 2.5% in the July-September quarter, the government said Thursday (Oct. 27).
The expansion, the strongest quarterly growth in a year, came as a relief after anemic growth in the first half of the year and weeks of wild stock market shifts.
The economy must grow at nearly double the third-quarter pace to lower high unemployment, which has been near 9% for the more than two years since the recession officially ended.
And though consumer spending was triple the level of the second quarter, Americans earned less, on an inflation-adjusted basis, in the July-September period. That meant that many people financed their spending binges by cutting back on savings. Few economists think that can continue.
Economists believe that growth in consumer spending, which accounts for about 70% of economic activity, will be restrained until incomes start growing at healthier levels. That is unlikely until hiring picks up.
Paul Ashworth, chief U.S. economist for Capital Economics, predicts that growth will cool off in the fourth quarter and next year.
Nonetheless, the report on U.S. gross domestic product, or GDP, sketched a more optimistic picture for an economy that only two months ago seemed destined for another recession.
And it was delivered on the same day that European leaders announced a deal in which banks would take 50% losses on Greek debt and raise new capital to protect against defaults on sovereign debt. Stocks surged on the European deal and maintained their gains after the report on U.S. growth was released.
“This has been a morning of encouraging news,” said Jennifer Lee, a senior economist for BMO Capital Markets. “The fourth quarter may see some pullback in U.S. economic growth … but the positive details underlying the GDP report should help ease fears of a U.S. recession..somewhat.”
September offered the latest sign that Americans will shop, but only when they think they’re getting a deal.
The Associated Press reported that the International Council of Shopping Centers said today (Oct. 6) that revenue rose 5.5% in September, with several retailers including Target and Kohl’s posting strong gains as consumers snagged discounted merchandise.
The revenue increases, which beat Wall Street estimates, leave uncertainty about whether retailers will have to offer more bargains to lure consumers to buy during the winter holiday shopping season. Retailers can make up to 40% of their revenue during the period, which runs from November through December.
“This past month shows consumers are rewarding retailers who are matching great merchandise with great deals – a clear signal to expect more and earlier promotions as we enter the holiday season, ” said Sherif Mityas, a partner in the retail practice at A.T. Kearney, a global management consulting firm.
The revenue gains at stores open at least a year — a key indicator of a retailer’s health — come as merchants look for a sign of how consumers will spend during the winter holiday season.
Though many retailers reported better-than-expected results in September, concerns linger that shoppers who are fretting about high unemployment, a weak housing market and turbulent stock markets, will continue to seek out bargains that could significantly eat away at retailers’ profits.
Wealthy shoppers seem to the only ones who were paying full price. Saks Inc. reported a 9.3% increase in September, better than the 6.5% gain expected by analysts. And Nordstrom Inc. posted a 10.7% surge last month, which exceeded the 5.2% analysts were predicting.
If you’re lusting for a Lexus or pining for a piano, you’re part of a big crowd. Despite a jump in July, consumer spending has slowed to a crawl, according to a report by USA Today.
“We’ve been putting off a bathroom renovation and a new car,” says Ken Whitehead, consultant for UnitedHealthcare in Franklin, Tenn. “We’ve been worried about the economy and the lack of growth that we’ve seen.”
Until consumers such as the Whiteheads start to buy the things they’re yearning for, the economy will remain mired in a slump. Consumer spending is the main engine of U.S. economic growth. “Consumers are very apprehensive and cautious in spending, and we expect that to continue,” says Diane Swonk, chief economist at Mesirow Financial.
That’s the question that politicians and economists are pondering now: What will it take to get you to open your wallet? Low interest rates haven’t helped; tax cuts haven’t, either. Raises and a better job market would be a big help, but businesses won’t start hiring until — you guessed it — spending rises. “It’s a Catch-22 situation,” says Lynn Franco, chief economist for The Conference Board.
A tenet of economics is that in a recession, people start pining for things they want, but can’t afford. That’s called pent-up consumer demand. Eventually, they save enough (or get more income) and break down and buy those things. When that happens, the recession ends.
Consider your car. Increased auto sales don’t just enrich car salesmen and car companies. There are hundreds of companies that make parts for cars, and that demand flows to them. Stepping further down the automotive food chain, increased auto sales means higher demand for raw materials, such as rubber, steel and plastics.
There’s plenty of pent-up demand for new cars. The odds are good your current car is older than your last car was when you sold it. In 2010, the latest data available, the average car on the street was 11 years old, up from 8.4 years in 1995, according to Polk, which tracks auto data. More cars were scrapped in the 15 months ended March 2010 than were sold.
Cars are better built than they used to be, which is one reason people are hanging on to them. But another is that people simply don’t feel comfortable buying a new one in the current economy. “What we’re seeing now is that consumers are more in favor of repairing an aging auto than taking on new debt,” Franco says.
Houses are the other obvious example. A new home means work for carpenters, construction workers, sawmill operators and real estate agents. But even if you buy an existing home, you’ll probably also be in the market for carpet, furniture, drapes and lawn gnomes.
Existing home sales have slowed to a trickle, although they’re remarkably affordable. The median price of existing houses relative to average employment income per worker is at its lowest since the 1970s, says John Lonski, economist for Moody’s Analytics. Mortgage rates are at levels last seen in the Truman administration.
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