Bloomberg News

U.S. Spending Rises on Employment Picture

March 30, 2012

Sarah Even checks out a new Chrysler in Hollywood, Florida. Photographer: Joe Raedle/Getty Images

Sarah Even checks out a new Chrysler in Hollywood, Florida. Photographer: Joe Raedle/Getty Images

Americans increased their spending by the most in seven months as an improving labor market boosted confidence, adding to evidence the world’s largest economy is gaining strength.

Purchases climbed 0.8 percent in February, Commerce Department figures showed today in Washington, exceeding the 0.6 percent median gain forecast in a Bloomberg News survey of economists. The Thomson Reuters/University of Michigan’s final index of consumer sentiment rose to 76.2, the highest since February 2011, from 75.3 last month.

Employment gains are helping sustain the consumer spending that accounts for 70 percent of the economy, lifting sales at companies such as Nike Inc. Another report today showed business activity held near a 10-month high, indicating that the U.S. economy is weathering rising fuel costs.

“Consumer spending is going to hold its ground,” said Chris Christopher Jr., a senior principal economist at IHS Global Insight in Lexington, Massachusetts. Economists at IHS were the second-best forecasters of personal spending in the two years through February, according to data compiled by Bloomberg. “There seems to be a positive feedback between better employment numbers and spending,” Christopher said.

The Institute for Supply Management-Chicago Inc. said its barometer, which measures business activity across the U.S., fell to 62.2 from 64 in February. Readings greater than 50 signal growth. Economists forecast the gauge would fall to 63, according to the median of 58 estimates in a Bloomberg survey.

Stock Rally

Stocks rose, extending the Standard & Poor’s 500 Index’s biggest first-quarter advance since 1998.

The S&P 500 increased 0.4 percent to 1,408.7 at 12:38 p.m. in New York. The benchmark gauge has rallied 12 percent this year, gaining for a second straight quarter. The yield on the 10-year Treasury note slipped two basis points, or 0.02 percentage point, to 2.14 percent.

Nike, the world’s largest sporting-goods company, is among those seeing improving demand.

“There is some stability easing back into the broader marketplace as consumer confidence moves higher in some parts of the world,” Chief Executive Officer Mark G. Parker said in a March 22 conference call.

The Beaverton, Oregon-based company this month reported third-quarter profit that topped analysts’ estimates as sales gained in North America. The maker of Air Jordan basketball shoes has been using new products to lure consumers who are spending more on athletic gear across the industry. The strategy helped boost Nike’s third-quarter sales 17 percent to $2.15 billion in North America, the company’s largest market.

Europe, Japan

Other reports today showed inflation rose less than forecast in Europe and Japan’s industrial production unexpectedly declined, undercutting signs of an economic rebound in the first quarter.

The inflation rate in the 17-nation euro region fell to 2.6 percent this month from 2.7 percent in February, the European Union’s statistics office in Luxembourg said in an initial estimate. While that is the lowest rate since August, it was above the 2.5 percent pace forecast by economists, according to the median of 39 estimates in a Bloomberg News survey.

Japan’s factory output in February slid 1.2 percent from the previous month, the Trade Ministry said, after a 1.9 percent gain in January. The median estimate in a Bloomberg survey was for a 1.3 percent increase.

More Active Role

American households may be poised to take a more active role in the expansion as the biggest payroll gains since 2006 underpin confidence. While wages are climbing, other forms of income like interest receipts are lagging behind, raising the risk that higher fuel costs will limit gains in consumer spending.

Today’s Commerce Department report showed U.S. incomes climbed 0.2 percent for a second month after January’s gain was revised down, sending the saving rate to a more than two-year low. Incomes were projected to increase 0.4 percent, according to the Bloomberg survey median.

Adjusted for inflation, which are the figures used to calculate gross domestic product, consumer spending increased 0.5 percent, the most in five months.

Income after taxes and adjusted for inflation declined 0.1 percent in February, the third decrease in the past four months. The decline combined with the jump in spending pushed the saving rate down to 3.7 percent, the lowest level since August 2009, from 4.3 percent in January.

Saving More

While the saving rate has declined, Americans are still putting more money away then they did before the onset of the 18-month recession in December 2007. The saving rate that month was 2.6 percent, and it rose as high as 8.3 percent in May 2008.

A firming labor market is helping household sentiment. The jobless rate held at a three-year low of 8.3 percent in February, according to data from the Labor Department.

The Bloomberg Consumer Comfort Index last week reached the second-highest level in four years. Over the past three weeks, at least 30 percent of households said they had a favorable view of the buying climate, the longest stretch since early 2008.

While job gains are lifting Americans’ spirits, higher gasoline prices remain a concern. The price of a gallon of regular unleaded gas was $3.93 as of March 29, up 65 cents since the end of last year, according to AAA, the nation’s largest automobile association.

Energy Prices

“Higher energy prices would probably slow growth, at least in the short run,” Federal Reserve Chairman Ben S. Bernanke said March 21. Rising fuel costs create “short-term inflation pressures, and moreover, they act as a tax on household purchasing power and reduce consumption spending, and that also is a drag on the economy.”

Today’s report showed the Fed’s preferred price gauge, which is tied to consumer spending patterns, climbed 0.3 in February from the prior month. It was up 2.3 percent from the same time last year. Fed policy makers set a goal to keep inflation at around 2 percent when they met in January.

To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net; Lorraine Woellert in Washington at lwoellert@bloomberg.net

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


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