By Bob Willis
Aug. 4 (Bloomberg) -- Consumer spending probably slowed in June as the boost from tax rebates waned, signaling near-record gasoline prices and a weakening labor market hurt households, economists said before a report today.
The 0.4 percent increase followed a 0.8 percent rise in May, according to the median forecast of 67 economists surveyed by Bloomberg News. The report may also show inflation accelerated.
The tax rebates from the government's stimulus plan will provide only a temporary boost for Americans in the face of $4-a- gallon gasoline, tumbling home prices and mounting job losses. The Federal Reserve is projected to hold interest rates unchanged tomorrow as prices rise and the economy slows.
``Consumer spending still has tremendous headwinds and it will no longer be fueled by the tax rebates,'' said Bill Hampel, chief economist at the Credit Union National Association in Washington. ``Consumer spending will be weak at least through the middle of next year.''
The Commerce Department's report is due at 8:30 a.m. in Washington. Spending estimates in the Bloomberg survey ranged from 0.5 percent drop to a gain of 0.9 percent.
Separately, the Commerce Department may report that factory orders rose 0.7 percent in June compared with a 0.6 percent gain the prior month, according to economists surveyed by Bloomberg. Commerce will release its report at 10 a.m.
The tone of spending today's report will hinge on whether the jump in prices accounted for much of the expected increase in purchases, economists said.
Incomes Fall
Incomes likely fell 0.2 percent in June after a 1.9 percent gain the prior month, when most of the tax rebates were delivered. About $28 billion went out in June, compared with about $50 billion in late April and May, according to Treasury Department figures.
The Fed's preferred price gauge, known as the core measure because it excludes food and fuel, probably rose 0.2 percent last month after a 0.1 percent May gain, the median forecast showed.
Core prices in the 12 months ended in June probably climbed 2.2 percent, the biggest year-over-year increase since December, according to the survey median.
Investors are betting the Fed will hold the benchmark rate unchanged at 2 percent tomorrow, according to federal funds futures contracts. Fed Chairman Ben S. Bernanke on July 15 told lawmakers that the economy faced threats to both growth and inflation.
There are ``significant downside risks to the outlook for growth'' and ``upside risks to the inflation outlook have intensified,'' he told the Senate Banking Committee in Washington.
Spending to Slow
Most economists are forecasting the lift from the rebates will fade in the second half of the year. Retail sales rose 0.1 percent in June, less than forecast, indicating consumers may already have started to retrench. Purchases of autos and light trucks dropped in July to the lowest level since 1993, industry figures last week showed.
Economists surveyed by Bloomberg in the first week of July forecast economic growth would slow to a 1.4 percent annual pace in the third quarter and to 0.5 percent in the fourth quarter.
The economy shrank at a 0.2 percent rate in the last three months of 2007 and grew at about an average 1.5 percent pace in the first six months of 2008, government data last week showed.
With the economy teetering on the brink of a recession, consumers are focusing their purchases on staples while cutting back on luxuries like $4 lattes, causing sales to slump at Starbucks Corp. the world's largest chain of coffee shops.
Starbucks Corp. last week said it will close more U.S. stores than it will open next year after it posted its first loss in 16 years as a public company.
``Until the economy significantly improves, we're just trying to do what we can to get through this storm,'' Starbucks Chairman Howard Schultz said on a conference call.
Bloomberg News
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Pers Pers Core PCE Factory
Inc Spend Prices Orders
MOM% MOM% MOM% MOM%
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Date of Release 08/04 08/04 08/04 08/04
Observation Period June June June Jan.
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Median -0.2% 0.4% 0.2% 0.7%
Average -0.1% 0.4% 0.2% 0.7%
High Forecast 1.2% 0.9% 0.3% 2.0%
Low Forecast -0.8% -0.5% 0.1% -0.2%
Number of Participants 61 67 45 54
Previous 1.9% 0.8% 0.1% 0.6%
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4CAST Ltd. -0.3% 0.3% 0.3% 2.0%
Action Economics -0.3% 0.5% 0.3% 0.9%
Argus Research Corp. 0.6% 0.5% --- 0.7%
Banc of America Securitie -0.4% 0.4% 0.3% 0.6%
Bank of Tokyo- Mitsubishi -0.3% 0.6% 0.2% 0.6%
Bantleon Bank AG -0.2% 0.4% 0.2% 0.6%
Barclays Capital -0.4% 0.4% 0.3% 0.8%
BBVA -0.8% 0.4% --- ---
BMO Capital Markets -0.3% 0.3% 0.2% 0.7%
BNP Paribas 1.0% 0.4% --- 0.3%
Briefing.com 0.0% 0.4% --- 0.5%
Calyon -0.3% 0.5% 0.2% 1.1%
CIBC World Markets 0.0% 0.4% --- ---
Citi -0.2% 0.6% --- 1.0%
ClearView Economics -0.5% -0.5% 0.2% 0.8%
Commerzbank AG 1.2% 0.5% --- ---
Credit Suisse -0.2% 0.4% 0.2% ---
Daiwa Securities America -0.5% 0.3% 0.2% 0.8%
Danske Bank -0.1% 0.5% 0.3% ---
DekaBank -0.2% 0.5% --- 0.6%
Deutsche Bank Securities -0.1% 0.3% 0.2% 1.0%
Deutsche Postbank AG --- 0.3% --- 0.7%
Dresdner Kleinwort --- 0.6% 0.2% 0.9%
DZ Bank -0.2% 0.4% 0.2% 0.5%
First Trust Advisors -0.1% 0.5% --- 0.7%
Fortis --- 0.5% --- 0.8%
GCI Capital --- 0.2% 0.2% ---
H&R Block Financial Advis -0.3% 0.6% 0.2% 0.6%
Helaba -0.3% 0.4% 0.3% 0.4%
HSBC Markets -0.3% 0.5% 0.2% 0.9%
IDEAglobal -0.3% 0.4% 0.2% ---
Informa Global Markets -0.5% 0.6% --- -0.1%
ING Financial Markets -0.4% 0.5% 0.2% 1.0%
Insight Economics -0.3% 0.3% 0.3% 0.7%
Janney Montgomery Scott L -0.3% 0.3% 0.2% 0.9%
JPMorgan Private Client -0.1% 0.6% 0.2% 0.8%
Landesbank Berlin 0.7% 0.3% --- 1.3%
Landesbank BW -0.1% 0.5% --- 0.7%
Lehman Brothers -0.1% 0.5% 0.3% 0.5%
Lloyds TSB 1.0% 0.5% 0.2% -0.2%
Maria Fiorini Ramirez Inc -0.2% 0.4% 0.2% 0.7%
Merrill Lynch 0.3% 0.6% --- 0.8%
MFC Global Investment Man 0.1% 0.3% 0.2% 1.0%
Moody's Economy.com -0.3% 0.4% 0.2% 0.9%
Morgan Stanley & Co. -0.3% 0.4% --- ---
National City Corporation -0.3% 0.4% 0.2% 0.4%
Natixis 0.5% 0.8% 0.2% ---
Newedge -0.2% 0.4% 0.2% 0.5%
Nomura Securities Intl. -0.4% 0.5% 0.1% 0.2%
Nord/LB 0.1% 0.4% 0.2% 0.7%
PNC Bank -0.2% 0.6% --- 0.5%
RBS Greenwich Capital -0.1% 0.6% 0.3% 0.5%
Ried, Thunberg & Co. --- 0.4% --- 0.6%
Schneider Trading Associa 0.5% 0.4% 0.2% 1.1%
Scotia Capital -0.3% 0.3% --- 0.9%
Societe Generale -0.2% 0.5% 0.2% 1.1%
Stone & McCarthy Research -0.5% 0.3% --- 0.7%
TD Securities 0.1% 0.3% 0.3% ---
Thomson Financial/IFR 1.1% 0.9% 0.2% 1.1%
UBS Securities LLC --- 0.5% 0.3% ---
Unicredit MIB 0.6% 0.2% --- ---
University of Maryland -0.2% 0.5% 0.2% 0.8%
Wachovia Corp. 0.4% 0.4% 0.2% 0.4%
Wells Fargo & Co. -0.3% 0.5% --- 0.9%
WestLB AG -0.3% 0.5% 0.2% 0.7%
Westpac Banking Co. 0.0% 0.3% 0.3% 1.2%
Wrightson Associates -0.5% 0.5% 0.2% ---
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To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
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