Ahead of the Bell: US Consumer Spending

Associated Press

WASHINGTON (AP) — U.S. consumers likely held back on spending in October, hampered by weak growth in pay, disruptions caused by Superstorm Sandy and uncertainty surrounding looming tax increases.

Economists forecast that consumer spending increased last month only 0.1 percent. They also expect income grew just 0.2 percent, according to a survey by FactSet. Both would be much lower than September, when consumer spending jumped 0.8 percent and income grew 0.4 percent.

The Commerce Department will release the report at 8:30 a.m. EST Friday.

Consumer spending drives 70 percent of economic activity. High unemployment and weak pay increases have limited consumers from stepping up spending this year, which has kept growth weak.

In October, spending at retail business fell 0.3 percent, the first drop after three months of gains. Auto sales dropped 1.5 percent, the biggest decline in a year. Sales declined in part because Superstorm Sandy shut down business activity in the final days of the month.

And sales weren't much better in November, according to reports from major retailers. The International Council of Shopping Centers said 18 major retailers reported sales rose 1.7 percent in November compared to the same period a year ago. The group had been expecting sales growth between 4.5 percent and 5.5 percent.

Analysts said while holiday sales got off to a strong start on the Friday after Thanksgiving, those gains were blunted by weakness in early November that reflected disruptions caused by Sandy.

The government reported Thursday that the overall economy grew at an annual rate of 2.7 percent in the July-September quarter, an improvement from the 2 percent rate of growth initially estimated. However, economists believe the acceleration in activity will be short-lived.

Many of them predict growth is slowing in the current October-December quarter to less than 2 percent, a rate that is too weak to make a significant dent in unemployment.

The storm is likely to weigh on growth early in the quarter. And consumers and businesses may hold back on spending because they fear lawmakers and Obama won't reach a deal to avoid the "fiscal cliff." That's the name for sharp tax increases and spending cuts that would occur in January without a deal.

Job growth did increase in October with employers adding 171,000 jobs and the government boosting its estimates for hiring in August and September.

Since July, the economy has created an average of 173,000 jobs a month. That's up from 67,000 a month from April through June, a development that has brightened consumers' outlook.

The Conference Board reported Tuesday that consumer confidence rose to 73.7 in November, helped by a better outlook for hiring over the next six months. November's level was up from 73.1 in October with both months posting the best confidence readings in five years. The index is still below the level of 90 that is consistent with a healthy economy.

Analysts said that a better market for home sales and rising home prices were contributing to Americans' improved mood.

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