Ahead of the Bell: Consumer Spending

AP News
Posted: Dec 22, 2009 5:00 PM

Consumer spending and incomes are both expected to show gains for November, increases that should provide support for the economic recovery.

Economists surveyed by Thompson Reuters expect personal spending will rise 0.6 percent in November, only slightly slower than a better-than-expected 0.7 percent jump in October.

Analysts are looking for personal incomes to jump by a solid 0.5 percent, which would be the best showing since May, when tax cuts and benefit checks from the government's $787 billion stimulus program had given a boost to Americans' pocketbooks.

The Commerce Department will release the report on consumer spending and incomes at 8:30 a.m. EST Wednesday.

Consumer spending is closely watched because it accounts for 70 percent of economic activity. The worry is that any rebound in consumer spending will be short-lived because unemployment will rise further in coming months, causing consumers to cutback as they resume worrying about possible layoffs.

But at least, the news in November on both the spending front and the labor front was better than expected.

The unemployment rate dropped to 10 percent, down from a 26-year high of 10.2 percent in October. Economists believe that more people working will translate into a strong rise in the wages component of personal incomes for November and push total incomes up by a much faster pace than the modest 0.2 percent gains in both September and October.

The 0.6 percent rise in consumer spending is expected to be fueled by the surprisingly strong 1.3 percent jump in retail sales that occurred during the month, a gain that was the biggest increase since August and more than double what economists had expected.

The boost came from shoppers crowding malls for deep discounts over the Thanksgiving weekend although the concern is whether demand will remain strong enough to give retailers a Merry Christmas. Those worries have been heightened after a big snowstorm sharply cut into sales on Super Saturday _ the last Saturday before Christmas. Merchants are hoping that last-minute shoppers will compensate by coming out in force in the final days remaining before Christmas.

The government reported Tuesday that the overall economy, as measured by the gross domestic product, expanded at an annual rate of 2.2 percent in the July-September quarter. That was a downward revision from an earliest estimate that the economy was growing at an annual rate of 2.8 percent in the third quarter.

However, it still represented the first positive growth following four consecutive quarterly declines in GDP and analysts predicted that it would set the stage for stronger growth in the current October-December period.

Nariman Behravesh, chief economist for IHS Global Insight, said he expected GDP growth to come in around 4 percent in the current quarter, with consumers, U.S. export sales to a reviving global economy and inventory rebuilding helping to support growth in this quarter.

However, all analysts are concerned about what 2010 will bring, given what they believe will be lingering problems with unemployment.