Consumer Spending in U.S. Increases for Third Month

By Timothy R. Homan

Feb. 1 (Bloomberg) -- Spending by U.S. consumers increased in December for a third consecutive month, signaling the biggest part of the economy will contribute more to growth in coming months.

The 0.2 percent increase in purchases was less than anticipated and followed a 0.7 percent gain in November that was larger than previously estimated, Commerce Department figures showed today in Washington. Incomes climbed 0.4 percent, exceeding expectations.

Retailers such as Amazon.com Inc. are posting profits on increased sales as Americans spent more this past holiday season than the year before. Employment is key to propelling bigger gains in spending, one reason the Obama administration is proposing a fiscal 2011 budget today that calls for $100 billion in additional stimulus focusing on jobs.

“Consumers have the wherewithal to support good spending, however they are going to be reticent until they see a few good months of job gains,” said Craig Thomas, a senior economist at PNC Financial Services Group Inc. in Pittsburgh, who correctly forecast the gain in spending. “2010 is lined up to be a moderately good year.”

Stock-index futures held earlier gains following the report. The contract on the Standard & Poor’s 500 Index rose 0.6 percent to 1,076.5 at 9:10 a.m. in New York. Treasury securities fell.

The median estimate of 65 economists surveyed called for a 0.3 percent increase in spending, after an originally reported gain of 0.5 percent the prior month. Projections ranged from no change to 0.7 percent.

Income Gains

The gain in incomes followed a 0.5 percent increase in November and exceeded the 0.3 percent median estimate in the Bloomberg survey. Wages and salaries climbed 0.1 percent in December after increasing 0.4 percent the prior month.

Today’s report showed prices were stabilizing. The inflation gauge tied to spending patterns rose 2.1 percent from December 2008, less than the survey median forecast.

The Fed’s preferred price measure, which excludes food and fuel, climbed 0.1 percent in December from the previous month and was up 1.5 percent from a year earlier.

Adjusted for inflation, spending climbed 0.1 percent following a 0.4 percent rise the prior month.

Because the increase in spending was smaller than the gain in incomes, the savings rate rose to 4.8 percent from 4.5 percent the prior month.

Disposable income, or the money left over after taxes, increased 0.4 percent.

Better Sales

Amazon, the world’s largest Internet retailer, posted profit and sales that beat analysts’ estimates and said revenue growth may accelerate this quarter as consumers start spending more following the recession. Sales may rise as much as 43 percent to $7 billion in the first quarter, more than last year’s 18 percent growth, the Seattle-based company said last week in a statement. Analysts surveyed by Bloomberg had estimated sales of $6.42 billion.

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, climbed 0.2 percent in December after rising 2.3 percent the prior month.

Purchases of non-durable goods decreased 0.8 percent, and spending on services, which account for almost 60 percent of all outlays, increased 0.4 percent.

The economy grew at a 5.7 percent annual rate in the fourth quarter, exceeding the median forecast of economists surveyed, figures from the Commerce Department showed last week. Consumer spending, which accounts for 70 percent of the economy, climbed at a 2 percent pace, also exceeding expectations.

To contact the reporter on this story: Timothy R Homan in Washington at thoman1@bloomberg.net

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Manufacturing in U.S. Expands More Than Forecast

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Manufacturing in U.S. Expands More Than Forecast (Update2)

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By Bob Willis

Feb. 1 (Bloomberg) -- Manufacturing expanded in January at the fastest pace since August 2004, spearheading the U.S. recovery from the worst recession since the 1930s.

The Institute for Supply Management’s factory index rose to 58.4, exceeding the highest estimate in a Bloomberg News survey of economists, from December’s 54.9, figures from the Tempe, Arizona-based group showed. Readings greater than 50 signal expansion. The gain reflected increases in orders, production and employment.

Factories are stepping up production as stimulus-fueled gains in demand and record cutbacks in inventory boost orders. After job cuts of 7.2 million in the last two years, some companies such as Ford Motor Co. are beginning to hire again, laying the groundwork for sustained gains in spending.

“Manufacturing is growing, it’s going to continue to expand,” said Hugh Johnson, who manages more than $1.6 billion as chairman of Albany, New York-based Johnson Illington. His forecast of 58 was highest in the Bloomberg survey. “Whether or not this continues to unfold will depend very heavily on final demand.”

Stocks and Treasury yields rose after the report, with the Standard & Poor’s 500 Index gaining 1.1 percent to 1,085.16 at 10:47 a.m. in New York. The yield on the 10-year Treasury note rose 7 basis points to 3.66 percent, according to BGCantor Market Data.

The factory index exceeded economists’ median forecast of 55.5, according to 67 projections in a Bloomberg survey. Estimates ranged from 53.5 to 58. Manufacturing accounts for about 12 percent of the economy.

Spending, Incomes

A separate report today showed U.S. personal spending rose 0.2 percent in December, the third straight gain, according to the Commerce Department in Washington. Incomes climbed 0.4 percent, exceeding expectations.

The pace of global manufacturing is picking up in response to faster economic growth, separate reports showed today. U.K. factories expanded in January at the fastest rate since 1994, figures from the Chartered Institute of Purchasing and Supply and Markit Economics showed.

Growth in the 16-nation euro region’s manufacturing industry accelerated more than estimated in January, according to a separate report from London-based Markit Economics.

The U.S. ISM’s production index rose to 66.2 from 59.7 and the new orders index increased to 65.9, the highest since December 2004, from 64.8.

Employment Rises

The employment index rose to 53.3 in January, the highest since April 2006, from 50.2 a month earlier.

A gauge of export orders increased to 58.5 from 54.5. The index of prices paid jumped to 70 from 61.5.

The supplier delivery gauge, a measure of the time it takes to receive goods, rose to 60.1 from 56.8 the prior month. The measure of orders waiting to be filled increased to 56 from 50. The inventory index rose to 46.5 from 43.

Government stimulus helped spark rebounds in the housing and automobile industries, two of the most depressed areas during the recession.

Factories also benefited from increased orders after companies pared inventories last year by a record $125 billion. Efforts to rebuild depleted stockpiles at the end of the year contributed 3.4 percentage points to a fourth-quarter growth rate of 5.7 percent, the strongest in six years.

Corporate spending on new equipment is also beginning to pick up. Texas Instruments Inc., the second-largest U.S. chipmaker, said it will spend almost $1 billion this year to expand three factories and open a fourth to fill orders.

Federal Reserve

Federal Reserve officials, who left the benchmark lending rate unchanged in a range between zero and 0.25 percent on Jan. 27, noted in their policy statement that “business spending on equipment and software appears to be picking up.”

Employers last month may have added jobs for the second time in the last two years. Economists surveyed by Bloomberg forecast an 8,000 gain in payrolls in January after a loss of 85,000 the previous month. The Labor Department will report the figure on Feb. 5.

Production gains are starting to encourage the hiring needed to ensure the recovery is sustained.

Ford said Jan. 26 it will spend about $400 million and add 1,200 jobs at two Chicago plants to build a new, more fuel- efficient Explorer sport-utility vehicle.

Recalling Workers

Caterpillar Inc., the world’s largest maker of earthmoving equipment, has recalled more than 500 workers and said Jan. 27 that higher production will require “selective” increases in employment. Economies in North America, Europe and Japan are improving and more rapid rebounds are occurring in China and most developing countries, the Peoria, Illinois-based company said.

General Electric Co. is hiring workers in energy, health care and rail transportation, in part because governments’ economic-stimulus plans have helped lift demand.

GE, whose power-plant equipment generates one-third of the world’s electricity, is bidding to supply new passenger locomotives for Amtrak and in November announced a joint venture in China that would make high-speed rail locomotives that may add 200 U.S. jobs.

“We will create jobs in the United States that could not have been created any other way,” John Rice, chief executive officer of GE Technology Infrastructure, said of the rail programs in a Jan. 28 Bloomberg Television interview.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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