Ahead of the Bell: US consumer spending
WASHINGTON (AP) — Consumers likely spent more in November after scaling back in October, in part because of Superstorm Sandy.
Economists are forecasting that spending rose 0.4 percent in November and that income grew 0.3 percent. The report will be released at 8:30 a.m. EST Friday.
A 0.2 percent decline in spending last month followed disruptions in the Northeast after Sandy made landfall Oct. 29. The storm cut off power for millions of homes and kept many people from work.
Consumers' income was flat in October, partly because the storm reduced wages and salaries during the month at an annual rate of about $18 billion. The storm affected 24 states but struck New York and New Jersey most severely.
Consumers may also be scaling back spending because of fears about the "fiscal cliff." That's the name for automatic tax increases and spending cuts due to take effect in January unless Congress and the Obama administration reach a budget deal before the new year.
Consumer spending is closely watched because it accounts for about 70 percent of economic activity.
The government said Thursday that the economy grew at an annual rate of 3.1 percent in the July-September quarter, more than twice the 1.3 percent growth rate from April through June. Part of the improvement came from a 1.6 percent increase in consumer spending, slightly better than in the spring.
But analysts think economic growth has slowed in the October-December quarter to an annual rate below 2 percent. Uncertainty about whether or how the fiscal cliff will be resolved has led some businesses to delay or reduce hiring and investment in major equipment.
Many economists expect no improvement in the January-March quarter. The latest forecast from a panel of 48 economists with the National Association for Business Economics is that the economy will expand at an annual rate of 1.8 percent in the first quarter of 2013. Growth at that pace is considered too weak to significantly lower the unemployment rate, now at 7.7 percent.
But economists say growth could strengthen in 2013 if Congress and the administration resolve their budget debate in a way that doesn't too drastically raise taxes or cut government spending.
The Federal Reserve ended a policy meeting last week by deciding to extend its current level of $85 billion in monthly bond purchases indefinitely to try to keep long-term interest rates low.
The Fed also for the first time tied any increase in a key short-term interest rate to a substantially improved job market. It said it planned to keep banks' overnight lending rates at a record low near zero until unemployment has fallen below 6.5 percent — as long as the outlook for inflation remains tame.