By Shobhana Chandra
Nov. 26 (Bloomberg) -- The U.S. sank into a deeper recession as consumer spending, the biggest part of the economy, dropped in October by the most since the 2001 contraction, economists said before a government report today.
Purchases fell 1 percent after declining 0.3 percent in September, according to the median forecast in a Bloomberg News survey. Orders for long-lasting goods, sales of new houses and consumer sentiment also fell, other reports may show.
The biggest spending slump in three decades is likely to persist as home prices fall and job losses mount, threatening the holiday sales outlook at retailers from Zale Corp. to Best Buy Co. Faltering demand has caused the Federal Reserve, Treasury and President-elect Barack Obama to ratchet up plans to ease the credit crisis.
“Consumers are likely to continue to pare back spending,” said Michelle Meyer, an economist at Barclays Capital Inc. in New York. The pullback is “setting the stage for a bleak holiday shopping season.”
The Commerce Department’s spending figures are due at 8:30 a.m. in Washington. Estimates of the 72 economists surveyed ranged from declines of 0.4 percent to 2 percent. Incomes probably grew 0.1 percent, the smallest gain in three months, the survey also showed.
Also at 8:30 a.m., Commerce may report that orders for durable goods, those meant to last several years, fell 3 percent in October, according to the survey. Excluding transportation equipment, orders probably fell 1.6 percent, a third consecutive decline.
Sentiment Fades
The Reuters/University of Michigan’s final estimate of consumer sentiment for this month, due at 10 a.m., probably fell, approaching June’s 28-year low, according to the survey median.
A jump in firings is one reason Americans’ moods have darkened. A Labor Department report at 8:30 a.m. may show initial claims for jobless benefits last week held close to the 16-year high reached the prior week, according to the survey.
Retailers are concerned about the November-December holiday season, which brings in one-third or more of annual revenue. Zale, the biggest U.S. jewelry chain by stores, yesterday rescinded its annual forecast, saying in a statement that it “does not believe it can reliably gauge likely holiday performance or sales in the balance of fiscal 2009.”
Today’s spending report is also likely to confirm that inflation is retreating as demand wanes. The Fed’s preferred price gauge, which is linked to purchases and excludes food and fuel costs, was probably unchanged in October, according to the survey median. It would be the first time in almost two years it didn’t increase.
Bigger Drop
Consumer spending dropped at a 3.7 percent annual pace in the third quarter, more than the government had previously forecast and the biggest plunge since 1980, revised Commerce figures showed yesterday. The economy shrank 0.5 percent, also faster than initially estimated.
The freeze in credit is restricting purchases of expensive goods from cars to homes. To lure buyers, Ford Motor Co., the second-biggest U.S. automaker, said it will offer employee pricing to all buyers through Jan. 5, on almost all 2008 and 2009 Ford, Lincoln and Mercury models.
A Commerce report at 10 a.m. may show new-home sales dropped in October to a 441,000 annual rate, a 17-year low, according to the median forecast in the Bloomberg survey.
The Fed yesterday announced two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion. Upon taking office next year, Obama is likely to propose an economic-stimulus package three times larger than the one contemplated only weeks ago, with the main focus on infrastructure projects, aides and lawmakers said this week.
Bloomberg Survey
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Durables Pers PersU of Mich
Orders Inc Spend Conf.
MOM% MOM% MOM% Index
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Date of Release 11/26 11/26 11/26 11/26
Observation Period Oct. Oct. Oct. Nov. F
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Median -3.0% 0.1% -1.0% 57.5
Average -3.1% 0.1% -1.0% 57.1
High Forecast 0.5% 0.4% -0.4% 58.5
Low Forecast -6.5% -0.3% -2.0% 55.0
Number of Participants 72 67 72 56
Previous 0.9% 0.2% -0.3% 57.9
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4CAST Ltd. -4.0% 0.2% -1.3% 58.0
Action Economics -2.5% 0.1% -1.1% 57.9
Aletti Gestielle SGR -2.7% 0.2% -1.1% 57.7
Ameriprise Financial Inc -4.5% 0.2% -1.4% 57.5
Argus Research Corp. -0.5% -0.2% -0.4% 55.0
Banc of America Securitie -5.0% -0.3% -1.6% ---
Bank of Tokyo- Mitsubishi 0.5% 0.2% -1.2% 57.9
Bantleon Bank AG -1.5% 0.2% -1.2% 57.0
Barclays Capital -5.5% 0.2% -1.2% 56.0
BMO Capital Markets -3.0% 0.0% -1.3% 56.0
BNP Paribas -2.5% 0.1% -1.0% 55.0
Briefing.com -2.2% 0.2% -0.6% 58.5
Calyon -3.5% 0.1% -0.8% 56.7
CIBC World Markets -5.0% 0.1% -1.0% 55.0
Citi -4.6% 0.0% -1.2% 58.0
ClearView Economics -4.0% 0.2% -0.7% ---
Commerzbank AG -5.0% 0.1% -0.8% 58.0
Credit Suisse -6.5% 0.3% -1.0% 57.5
Daiwa Securities America -4.0% 0.1% -0.4% 57.9
Danske Bank --- 0.2% -1.2% ---
DekaBank -2.5% 0.0% -0.9% 57.5
Desjardins Group -2.2% 0.0% -1.2% 57.6
Deutsche Bank Securities -5.0% 0.0% -2.0% 57.0
Deutsche Postbank AG -3.5% --- -0.9% 57.9
Dresdner Kleinwort -3.0% --- -0.8% 57.6
DZ Bank -2.5% 0.1% -0.9% 57.9
First Trust Advisors -2.1% 0.0% -1.2% 58.0
Fortis -2.4% --- -1.2% ---
Helaba -2.0% 0.1% -0.8% 58.0
Herrmann Forecasting -5.3% -0.1% -1.6% 55.0
High Frequency Economics -4.0% 0.1% -1.6% 57.9
Horizon Investments -4.5% -0.3% -2.0% 57.5
HSBC Markets -2.5% 0.1% -1.2% 57.5
IDEAglobal -1.5% 0.2% -0.7% ---
IHS Global Insight -5.7% 0.0% -1.2% 57.9
Informa Global Markets -0.4% 0.3% -0.4% 55.0
ING Financial Markets -3.0% 0.0% -1.0% ---
Insight Economics -2.5% 0.2% -0.8% 56.5
Intesa-SanPaulo -4.0% --- -0.8% ---
J.P. Morgan Chase -3.0% 0.2% --- 57.0
Janney Montgomery Scott L -3.8% -0.2% -0.9% ---
JPMorgan’s Private Wealth -2.3% 0.1% --- 58.0
Landesbank Berlin -5.7% 0.1% -0.7% 55.0
Landesbank BW -3.0% 0.1% -1.1% 56.0
Lloyds TSB -2.0% 0.3% -0.7% 57.0
Maria Fiorini Ramirez Inc --- 0.0% -1.0% ---
Merrill Lynch -5.0% -0.1% -1.0% 57.9
MFC Global Investment Man -3.5% 0.1% -1.2% 57.0
Moody’s Economy.com -3.2% 0.3% -1.3% 56.0
Morgan Keegan & Co. -1.3% 0.1% -1.0% ---
Morgan Stanley & Co. -2.5% 0.1% -1.1% ---
National Bank Financial -3.0% --- -1.1% ---
National City Corporation 0.0% 0.2% -1.1% 56.5
Natixis -4.2% 0.0% -1.2% 57.5
Newedge -2.0% 0.1% -0.7% 57.9
Nomura Securities Intl. -2.4% -0.2% -0.8% ---
PNC Bank -2.5% 0.1% -1.2% ---
RBC Capital Markets --- 0.0% -1.1% ---
RBS Greenwich Capital -5.0% 0.3% -1.2% 55.0
Ried, Thunberg & Co. -3.5% --- -0.9% ---
Schneider Trading Associa -3.0% -0.1% -1.1% 57.0
Scotia Capital -3.5% 0.0% -0.4% ---
Societe Generale -1.2% 0.1% -0.8% 58.0
Standard Chartered -3.0% --- --- 57.0
Stone & McCarthy Research -2.5% 0.1% -0.9% 57.9
TD Securities -3.0% 0.0% -0.9% 57.9
Thomson Financial/IFR -0.5% 0.2% -0.9% 57.9
UBS Securities LLC -4.0% 0.3% -1.2% 56.5
Unicredit MIB -1.0% 0.2% -0.5% ---
University of Maryland -1.5% 0.1% -0.6% 57.9
Wachovia Corp. -4.2% 0.4% -0.8% ---
Wells Fargo & Co. -2.5% 0.1% -1.1% 57.0
WestLB AG -2.5% 0.1% -0.8% 57.9
Westpac Banking Co. -6.0% 0.0% -1.2% 56.5
Wrightson Associates -3.0% --- -0.9% 58.0
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To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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