View Full Version : U.S. Consumer Spending Declines Less Than Forecast

12-24-2008, 10:56 AM
By Bob Willis

Dec. 24 (Bloomberg) -- U.S. consumer spending in November declined less than forecast and, adjusting for inflation, increased for the first time in six months as cheaper gasoline gave Americans more cash to spend for the holidays.

Purchases fell 0.6 percent in November, while advancing by 0.6 percent after accounting for inflation, the Commerce Department said today in Washington. Separate figures showing that first-time unemployment benefit claims reached a 26-year high underscored that spending likely weakened in December.

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 spending last month. Still, Sears Holdings Corp., the largest U.S. department-store company, this month abandoned its earnings forecast for the remainder of the year, and economists anticipate a prolonged drop in spending into 2009.

“The outlook continues to look pretty grim,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, who correctly forecast the spending figure. Personal consumption “will still be pretty weak” next quarter as Americans boost savings, and spending probably won’t stabilize until the middle of next year, he said.

Stocks, Treasuries

Stock futures were little changed after today’s reports. The dollar remained lower, while Treasuries advanced. Futures on the Standard & Poor’s 500 Stock Index were up 0.3 percent at 861.50 at 9:21 a.m. in New York, benchmark 10-year note yields slipped to 2.16 percent from 2.18 percent late yesterday, and the dollar lost 0.5 percent against the euro to $1.3999.

A separate Commerce report showed orders for durable goods in November fell 1 percent, less than anticipated. Excluding a slump in transportation gear, orders unexpectedly increased.

First-time claims for jobless benefits surged more than forecast last week to 586,000, the Labor Department said, the highest level since November 1982.

“The rate of job losses has sped up to a pace consistent with forecasts for a plunge in GDP during the current quarter,” Tony Crescenzi, chief bond market strategist at Miller Tabak & co. in New York, said in a note to clients.

Unadjusted for inflation, spending dropped 0.6 percent last month, a record fifth consecutive decline, Commerce said. The decline reflected a 1.1 percent plunge in prices that was the biggest since record began in 1992.

Economists’ Forecasts

Economists forecast unadjusted spending would fall 0.7 percent, according to the median of 64 estimates in a Bloomberg News survey. Projections ranged from declines of 0.3 percent to 1.5 percent.

Today’s report also confirmed inflation is retreating as demand wanes. The price gauge tied to spending patterns increased 1.4 percent from November 2007, the smallest gain in six years. The Fed’s preferred gauge of prices, which excludes food and fuel, was unchanged for the second consecutive month, the first time that’s happened since 1999.

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 nominal 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.

Disposable Income

Disposable income, or the money left over after taxes, increased 1 percent after adjusting for inflation. It was the biggest gain since May.

Today’s report showed inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, increased 0.6 percent last month. Purchases of non-durable goods climbed 1.5 percent, and spending on services, which account for almost 60 percent of all outlays, rose 0.1 percent.

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’ 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 [email protected]
Last Updated: December 24, 2008 09:28 EST

12-24-2008, 06:14 PM
I think this might qualify as today's "feel good" thread!