Consumer spending power
It may have lifted US economy in third quarter to overcome slump
WASHINGTON: Spending by American consumers probably picked up in the third quarter, helping the world’s largest economy overcome a slump in business investment that is holding back the expansion.
Gross domestic product rose at a 1.8% annual rate after expanding at a 1.3% pace the prior quarter, according to the median forecast of 66 economists surveyed by Bloomberg ahead of Commerce Department data on Oct 26. It would be the first back-to-back readings lower than 2% since the US was emerging from the recession in 2009.
An improving housing market is helping boost household confidence just as companies cut back on replacing outdated equipment on concern about the so-called fiscal cliff. Federal Reserve policy makers will meet this week for the first time since announcing another round of stimulus in August aimed at shoring up growth that may help reduce unemployment.
“The economy is still in recovery mode,” said Scott Brown, chief economist at Raymond James & Associates
The consumer is looking better than we’d anticipated. Business spending is a concern. — RAYMOND JAMES
Inc in St Petersburg, Florida. “The consumer is looking better than we’d anticipated. Business spending is a concern.”
Consumer spending is projected to have increased at a 2.1% annual rate last quarter following a 1.5% gain from April through June, according to the survey median.
Retail sales in September and August had the best back-to-back showing since late 2010 as shoppers snapped up goods from cars to Apple Inc’s iPhones, a sign demand was heading into the year-end holiday son a high note. Target Corp, the secondbiggest US discounter, was among chains whose same-store sales last month topped analysts’ estimates.
Cars and light trucks sold at a 14.9 million annual pace in September, the most since March 2008, according to Ward’s Automotive Group. Chrysler Group LLC and General Motors Co reported gains.
A drop in joblessness and firming home prices mean consumer confidence may keep strengthening this quarter. The Thomson Reuters/ University of Michigan final index of sentiment, also due on Oct 26, jumped to 83 in October, the highest level since September 2007, according to the Bloomberg survey.
Payrolls rose 114,000 in September after a 142,000 increase the prior month, while the unemployment rate dropped to a three-year low of 7.8% from 8.1%, according to Labour Department figures.
Employment and the economy are central themes in the campaigns of President Barack Obama and Republican challenger Mitt Romney ahead of the Nov 6 presidential elections. The two candidates will have their third and final debate today, this time on foreign policy.
To spur growth and reduce unemployment, Fed policy makers last month began an open-ended quantitative easing programme, for the first time not specifying how long it would last or its total size. The central bank’s statement after the Oct 23-24 meeting may shed more light on its latest assessment of the economy and the labour market.
“Economic activity generally expanded modestly since the last report,” the Fed said in its Beige Book survey released on Oct 10. Consumer spending was “flat to up slightly,” while “residential real estate showed widespread improvement.”
Manufacturers, on the other hand, may be hesitant to invest amid the looming fiscal cliff of more than US$600bil in tax increases and government spending cuts set to take effect early nextyear unless Congress acts. In addition, slowing global growth is also hurting exports.
Honeywell International Inc lowered its full-year sales forecast on weaker demand for aerospace parts and falling auto production in Europe. The Morris Township, New Jersey-based maker of turbochargers and cockpit controls joined industrial peers General Electric Co and Parker Hannifin Corp in cutting forecasts last week.