By Shobhana Chandra
Aug. 29 (Bloomberg) -- Consumer spending in the U.S. probably slowed in July as the impact of the tax rebates faded, economists said ahead of a report today.
The 0.2 percent increase in purchases would follow a 0.6 percent rise in June, according to the median forecast of 75 economists surveyed by Bloomberg News. Another report may show consumer confidence improved this month as gasoline prices fell.
Americans, faced with rising unemployment, the largest increase in prices in 17 years and falling home values, are cutting back on big-ticket items like automobiles and furniture. The federal tax rebates, the bulk of which have already gone out, will no longer keep the biggest part of the economy going.
``Consumers hit a wall in July,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``The rebate boost is fading fast. The road ahead will be extremely bumpy.''
The Commerce Department's report is due at 8:30 a.m. in Washington. Spending estimates in the Bloomberg survey ranged from a gain of 0.8 percent to a drop of 0.1 percent.
The survey also projects incomes fell 0.2 percent in July, the first drop since August 2005, reflecting the diminishing impact of the rebates.
At 10 a.m., a report from Reuters/University of Michigan may show the consumer sentiment index rose to 62 in August, compared with 61.2 last month, according to the survey median.
More Inflation
The income and spending report is also likely to show inflation is eroding American's purchasing power. The price gauge tied to spending patterns probably rose 4.5 percent in the year ended July, the biggest 12-month gain since 1991, according to the survey median.
The measure that excludes food and energy costs, the one tracked by the Federal Reserve, probably rose 2.4 percent from a year earlier, the most since February 2007, the survey showed.
Concern over both slower growth and rising prices led Fed policy makers to hold the benchmark interest rate at 2 percent this month.
Rising unemployment, falling stock and house prices and stricter lending rules ``were viewed as pointing towards weak growth in personal consumption expenditures during the second half of 2008,'' minutes of the Fed's Aug. 5 meeting released this week showed.
Purchases of big-ticket items are weakening. Sales of autos and light trucks plunged in July to a 12.5 million annual pace, the lowest since 1993, according to Bloomberg calculations based on industry data.
Housing Slump
The real-estate slump in also hurting purchases of household goods. Williams-Sonoma Inc., the biggest U.S. gourmet- cookware chain, said yesterday that second-quarter earnings dropped 29 percent and reduced its annual sales forecast.
Weakening trends continued through August and are worst in cities most affected by the housing slump, Chief Executive Officer Howard Lester said on a conference call. At Pottery Barn and West Elm, for example, purchases have suffered in Southern California, Nevada and south Florida, he said.
``It is extremely difficult to know how the consumer will respond in the back half of the year,'' Lester said in a statement. ``We are also looking forward to 2009 with a very cautious outlook.''
The longest expansion in consumer spending on record will probably end this year, according to economists surveyed by Bloomberg earlier this month. Retail sales fell in July for the first time in five months, led by a slump in auto purchases, according to Commerce data.
Bloomberg Survey
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Pers Pers PCEU of Mich
Inc Spend Deflator Conf.
MOM% MOM% YOY% Index
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Date of Release 08/29 08/29 08/29 08/29
Observation Period July July July Aug. F
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Median -0.2% 0.2% 4.5% 62.0
Average -0.2% 0.3% 4.4% 62.0
High Forecast 0.6% 0.8% 4.6% 63.7
Low Forecast -1.0% -0.1% 4.0% 60.5
Number of Participants 73 75 16 57
Previous 0.1% 0.6% 4.1% 61.7
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4CAST Ltd. -0.2% 0.4% --- 62.5
Action Economics -0.4% 0.2% --- 63.0
AIG Investments -0.5% 0.4% --- 61.0
Aletti Gestielle SGR 0.1% 0.3% 4.5% 62.2
Argus Research Corp. 0.2% 0.5% --- 63.0
Banc of America Securitie 0.0% 0.3% --- ---
Bank of Tokyo- Mitsubishi -0.3% 0.0% --- 63.7
Barclays Capital -0.4% 0.2% 4.5% 62.0
BBVA -0.2% 0.2% --- ---
BMO Capital Markets -0.2% 0.2% --- 62.0
BNP Paribas -0.2% 0.3% --- 62.0
Briefing.com -0.5% 0.3% --- 63.0
Calyon -0.2% 0.2% --- 62.3
CFC Group -0.3% 0.2% 4.5% 62.2
CIBC World Markets -0.4% 0.3% --- ---
Citi -0.4% 0.4% --- 61.7
ClearView Economics 0.2% 0.3% --- ---
Commerzbank AG 0.1% 0.3% --- ---
Credit Suisse -1.0% 0.2% 4.6% 62.0
Daiwa Securities America -0.5% 0.1% --- ---
Danske Bank -0.4% -0.1% 4.4% 62.2
DekaBank -0.1% 0.2% --- 62.0
Desjardins Group -0.3% 0.4% 4.5% 61.7
Deutsche Bank Securities -0.5% 0.2% --- 62.0
Deutsche Postbank AG --- 0.2% --- 62.0
Dresdner Kleinwort --- 0.4% --- 61.7
DZ Bank 0.1% 0.2% --- 61.9
First Trust Advisors 0.2% 0.2% --- 63.0
Fortis --- 0.3% --- ---
FTN Financial -0.2% 0.3% 4.5% 62.0
Global Insight Inc. -0.5% 0.2% --- 62.2
Goldman, Sachs & Co. -0.3% 0.2% --- ---
H&R Block Financial Advis 0.0% 0.1% 4.0% 61.5
HBOS Treasury Services 0.0% 0.2% 4.5% 62.0
Helaba 0.0% 0.2% 4.5% 62.0
High Frequency Economics 0.2% 0.2% --- 61.7
Horizon Investments -0.1% 0.2% --- 61.5
HSBC Markets 0.0% 0.4% --- 63.0
IDEAglobal 0.1% 0.3% 4.3% 62.5
Informa Global Markets -0.3% 0.1% --- 61.5
ING Financial Markets 0.1% 0.2% --- 61.0
Insight Economics 0.1% 0.2% --- 62.0
Intesa-SanPaulo 0.0% 0.4% --- 62.5
J.P. Morgan Chase -0.7% --- --- 62.0
Janney Montgomery Scott L 0.0% 0.8% 4.2% ---
Landesbank Berlin -1.0% 0.3% --- 60.5
Landesbank BW 0.1% 0.3% --- 62.0
Lehman Brothers -0.5% 0.3% --- 62.0
Lloyds TSB 0.1% 0.3% --- 62.0
Maria Fiorini Ramirez Inc -0.5% 0.2% --- ---
Merk Investments -0.2% 0.3% --- 61.7
Merrill Lynch 0.6% 0.2% --- 61.9
Moody's Economy.com 0.1% 0.2% --- 63.0
Morgan Keegan & Co. -0.7% 0.2% --- ---
Morgan Stanley & Co. -0.3% 0.3% --- ---
National Bank Financial --- --- --- 62.5
Natixis 0.2% 0.5% 4.4% ---
Newedge 0.1% 0.3% --- 61.8
Nomura Securities Intl. -0.5% 0.4% --- ---
Nord/LB 0.3% 0.3% --- 61.5
PNC Bank -0.3% 0.3% --- ---
RBS Greenwich Capital -0.9% 0.2% --- 62.0
Ried, Thunberg & Co. --- 0.2% --- ---
Schneider Trading Associa -0.3% 0.5% 4.6% 62.5
Scotia Capital -0.1% 0.0% 4.4% ---
Societe Generale -0.4% 0.2% --- ---
Stone & McCarthy Research 0.1% 0.4% --- 60.7
TD Securities 0.2% 0.4% --- 61.7
Thomson Financial/IFR 0.2% 0.1% --- 62.0
Tullett Prebon 0.0% 0.3% --- 62.0
UBS Securities LLC -1.0% 0.2% --- 62.0
Unicredit MIB -0.7% --- --- ---
University of Maryland 0.2% 0.4% --- 61.7
Wachovia Corp. 0.4% 0.4% 4.4% ---
Wells Fargo & Co. -0.4% 0.2% --- ---
WestLB AG 0.0% 0.2% --- 62.0
Westpac Banking Co. -0.2% 0.1% --- 62.5
Wrightson Associates -0.5% 0.2% --- 62.0
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To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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