Personal Spending in U.S. Rises Less Than Forecast: Economy

December 24, 2011, 11:04 AM EST By Bob Willis

(Updates with closing markets in seventh paragraph.)

Dec. 23 (Bloomberg) -- Consumer purchases rose less than forecast in November as a drop in wages encouraged Americans to seek discounted merchandise at the start of the holiday shopping season.

Personal spending climbed 0.1 percent for a second month, while wages and salaries fell 0.1 percent from October, Commerce Department data showed today in Washington. Durable goods orders jumped 3.8 percent in November as a surge in aircraft bookings masked a drop in demand for business equipment.

“The consumer is moderately upbeat but we’re not out of the woods yet,” John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston. “As the bonus allowance is expiring, we have seen a slight cooling of the orders book for manufacturing, and the slowing in the euro zone seems to be impacting manufacturing on the margin.”

Target Corp. is among retailers using holiday promotions as limited job and income gains hold consumers back. While spending this quarter will improve from the previous three months, manufacturing is at risk of cooling as the tax incentive on equipment purchases comes to an end next week and shipments to Europe ease.

Today’s figures cap a week in which some of the data showed the economy picking up. First-time jobless claims fell in the week ended Dec. 17 to the lowest level since April 2008 and the Bloomberg Consumer Comfort Index posted its biggest seven-day gain since January. Real estate may be on the mend as housing starts increased to the highest level since April 2010.

Range of Estimates

A 0.3 percent gain was the median projection in a Bloomberg News survey of 79 economists. Estimates ranged from increases of 0.2 percent to 0.6 percent.

Stocks rose, erasing the 2011 decline for the Standard & Poor’s 500 Index. The S&P 500 climbed 0.9 percent to 1,265.33 at the close in New York.

Europe’s economy is taking a toll on the U.K. services industry. Output in the services that account for about 75 percent of the economy fell 0.7 percent in October, the Office for National Statistics said in London today.

In Asia, Singapore’s industrial production unexpectedly decreased in November for the first time in six months, adding to evidence of a weakening Asian outlook. Manufacturing, which accounts for more than 20 percent of the Singapore economy, dropped 9.6 percent from a year earlier, the Economic Development Board said today.

Spending Forecast

After today’s U.S. figures, Nomura Securities International Inc. economists in New York said in an e-mail that consumer spending would grow at a 3 percent annual rate in the current quarter. Economists at JPMorgan Chase & Co. said consumption was “tracking weaker,” at the lower end of a 2.5 percent to 3 percent forecast range.

The economy grew at a 1.8 percent annual rate from July through September as household purchases expanded at a 1.7 percent pace.

Business investment may slow in the fourth quarter, reflecting a second straight decline in shipments of capital goods excluding aircraft. Deliveries of business equipment excluding military hardware and aircraft dropped 1 percent in November after a 0.8 percent decrease, today’s durable goods report showed.

The drop in U.S. wages in November restrained overall income, which climbed 0.1 percent after a 0.4 percent October gain. Disposable income adjusted for changes in prices and taxes was unchanged in November after a 0.3 percent.

Savings Rate

The savings rate fell to 3.5 percent from 3.6 percent in October.

“In the absence of a significant pickup in income, we won’t see a big boost in spending,” said Yelena Shulyatyeva, an economist at BNP Paribas in New York. “The momentum will slow in the fourth quarter, but the economy is still growing.”

Adjusted for inflation, which are the figures used to calculate gross domestic product, consumer spending rose 0.2 percent for a second month.

Target began a three-day “Almost Last Minute Sale” on Dec. 8 with markdowns on such items as Stanley Black & Decker Inc. coffee makers and gift card giveaways. A week earlier, the discount chain held the “Big Toy Event” offering half off a second item.

Americans will be helped by Congress’ decision today to pass a two-month payroll tax cut extension today, eight days before its scheduled expiration.

Tax Cut

House Speaker John Boehner agreed late yesterday to extend the tax cut, capping a month of wrangling that led to a revolt by House Republicans over the bipartisan deal passed by the Senate on Dec. 17 in an 89-10 vote.

Meantime, the housing market may be stabilizing. Purchases of single-family properties increased 1.6 percent to a 315,000 annual pace, figures from the Commerce Department showed today in Washington. The gain pushed the number of new homes on the market to a record low.

At the same time, 2011 may surpass last year as the weakest ever for new-home sales. Demand is on pace to reach 304,000 this year, less than the 323,000 in 2010 that was the lowest since data-keeping began, according to Bloomberg calculations.

--With assistance from Timothy Homan and Chris Middleton in Washington. Editors: Vince Golle, Kevin Costelloe

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

To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net

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