By Michelle Jamrisko - Aug 30, 2013 6:53 AM PT
Consumer spending in the U.S. rose less than forecast in July as income growth slowed, indicating further job gains are needed to sustain household purchases.
Consumer purchases, which account for about 70 percent of the economy, rose 0.1 percent after a revised 0.6 percent increase the prior month that was larger than previously estimated, the Commerce Department reported today in Washington. The median forecast in a Bloomberg survey of economists called for a 0.3 percent rise. Incomes increased 0.1 percent, down from 0.3 percent the previous month.
Stronger property values are helping bolster household purchases of appliances and automobiles even in the face of rising mortgage rates, supporting home improvement retailers such as Lowe’s Cos. and Home Depot Inc. Photographer: Ty Wright/Bloomberg
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A bigger pickup in job growth and wage gains are needed to help consumer spending overcome weak global demand. Rising mortgage rates threaten to derail the household purchases of appliances and automobiles that have supported home improvement retailers such as Lowe’s Cos. (LOW) andHome Depot Inc. (HD)
“It’s difficult for consumers to increase their spending” as Americans face “concern about the stability of the labor market, whether they’re going to have their jobs” as well as the need to rebuild savings, said Gus Faucher, senior economist at PNC Financial Services Group Inc. in Pittsburgh, who correctly projected the rise in incomes. “There is some pent-up demand out there still.”
Stock Prices
U.S. stocks fluctuated, with the Standard & Poor’s 500 Index headed for its biggest monthly loss since May 2012, after the consumer spending data were released and as concerns overSyria eased. The S&P 500 (SPX) rose less than 0.1 percent to 1,638.83 at 9:48 a.m. in New York.
Projections on spending ranged from no change to a 0.5 percent increase in the Bloomberg survey of 74 economists. The June reading previously was reported as a gain of 0.5 percent. The survey median called for incomes (PITLCHNG) to gain 0.2 percent.
Gross domestic product grew at a 2.5 percent annualized rate in the second quarter after a 1.1 percent gain in the first three months of the year, the Commerce Department reported yesterday. Consumer 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, the figures showed.
Adjusting consumer spending for inflation, purchases were unchanged in July compared with a 0.2 percent increase the previous month, according to today’s report.
The Commerce Department’s price index tied to spending, a gauge tracked by Federal Reserve policy makers, increased 1.4 percent in July from the same period in 2012. The core price measure, which excludes volatile food and energy categories, rose 1.2 percent from July 2012.
Job Gains
Faster job gains would help drive the wage increases needed to boost household purchases. Employers probably added 180,000 jobs in August, according to the Bloomberg survey median ahead of the Sept. 6 report from the Labor Department. Hiring gains averaged 197,500 a month in the first six months of this year, up from 180,000 in the second half of 2012.
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 5.7 percent through Aug. 28 since April 30. The S&P 500 Index is up 2.3 percent over the same period.
At the same time, some retailers, such as Target Corp. (TGT) of Minneapolis, are seeing the demand increase in autos and housing “crowding out spending on other goods and services,” Executive Vice President Kathee Tesija said on an Aug. 21 earnings call.
To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
