Bloomberg News

Consumers in U.S. Probably Spent at Slowest Pace in 11 Months

June 27, 2011

June 27 (Bloomberg) -- U.S. consumer spending probably rose in May at the slowest pace in almost a year, reflecting fewer new-car purchases and dimmer employment prospects, economists said before a report today.

The projected 0.1 percent gain would be the smallest since June 2010 and follow a 0.4 percent rise the prior month, according to the median estimate of 63 economists surveyed by Bloomberg News.

Walgreen Co. is among retailers that indicated 9.1 percent unemployment and higher gasoline and grocery bills have prompted shoppers to pare back purchases of less essential goods. Federal Reserve policy makers said the restraint on purchasing power may prove temporary as commodity prices start to decline, allowing the economy to pick up later this year.

“Consumer spending is growing very sluggishly,” said Chris Christopher, a senior principal economist at IHS Global Insight in Lexington, Massachusetts. “The fall in gasoline prices is helping to a degree, but the employment situation in May, however, started deteriorating.”

The Commerce Department’s spending report is due at 8:30 a.m. in Washington. Economists’ forecasts ranged from declines of 0.3 percent to increases of 0.3 percent.

The report will also show incomes rose 0.4 percent for a fourth consecutive month, according to the survey median.

Economic growth slowed in the first quarter after surging energy costs strained consumer finances and Japan’s earthquake disrupted factory output. Labor market conditions have also begun to worsen, with payrolls growing by 54,000 workers in May, the fewest in eight months. The jobless rate climbed to 9.1 percent, the highest this year, the Labor Department showed.

‘Pressure on Customers’

“Persistent high unemployment, a weak housing market, high fuel prices and inflation all put pressure on consumers,” Greg Wasson, president and chief executive officer of Walgreen, said on a June 21 earnings call. In response to the economic outlook, customers of the largest U.S. drugstore chain are shifting more spending to essential goods, he said.

The Deerfield, Illinois-based company has been raising prices to combat more expensive input costs, including fuel, Chief Financial Officer Wade Miquelon said during the call.

In May, cars and light trucks sold at an 11.8 million annual rate, the slowest since September and down from a 13.1 million pace a month earlier, according to researcher Autodata Corp. Some of the drop in demand last month reflected a shortage of Japanese-made vehicles after the earthquake and tsunami in March disrupted supplies. With inventories running low, companies offered smaller discounts, which also deterred buyers.

Federal Reserve

Fed officials decided last week to keep its balance sheet at a record to spur the slowing recovery after completing $600 billion of bond purchases by the end of this month.

“The economic recovery appears to be proceeding at a moderate pace, though somewhat more slowly than the committee had expected,” Fed Chairman Ben S. Bernanke said at a press conference after a meeting of the Federal Open Market Committee on June 22. He said the slowdown is caused in part by “factors that are likely to be temporary,” including more expensive commodities as well as supply chain disruptions associated with Japan’s natural disaster.

Declining fuel costs during the last two weeks have helped boost retailers’ shares. The Standard & Poor’s 500 Retailing Index of 92 companies has increased 3.7 percent since June 10 compared with a 0.2 percent drop in the broader S&P 500.

Gasoline prices have fallen 9.6 percent through June 23 since reaching an almost three-year high of $3.99 on May 4, according to data from AAA, the nation’s largest motoring organization.

Consumer spending will grow an average 2.95 percent annual rate in the second half of 2011 after rising 2.1 percent this quarter, according to the median forecast of economists polled by Bloomberg News from June 1 to June 8.

--With assistance from Jillian Berman and Chris Middleton in Washington. Editors: Vince Golle, Carlos Torres

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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


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