US Consumer Purchasing – First Quarter 2014

Consumer Spending in U.S. Unexpectedly Declines

Source: Bloomberg

Author: Shobhana Chandra

US Consumer Purchasing – First Quarter 2014

Image courtesy of [David Castillo Dominici] / FreeDigitalPhotos.net 

American shoppers dialed it back in April after spending at the fastest pace in almost five years.

Household purchases unexpectedly fell 0.1 percent, the first decrease in a year, after a 1 percent gain the prior month that was the strongest since August 2009, Commerce Department figures showed today in Washington. After adjusting the figure to account for inflation, the news was worse: spending dropped by the most since September 2009 as income growth cooled.

Economists at Morgan Stanley and Barclays Plc were among those who trimmed their tracking estimates for second-quarter economic growth after households took a breather. A more restrained consumer underscores the need for faster progress in the job market that’s accompanied by fatter paychecks.

“The risk at this point is that the consumer is falling back into a pattern of mediocre spending growth,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, who correctly predicted the decline. Stanley lowered his second-quarter growth forecast to 3.3 percent from 3.5 percent. “You need to see more wage growth.”

Incomes (PITLCHNG) advanced 0.3 percent in April after climbing 0.5 percent as wages and salaries grew the least this year.

Limited pay gains may also be making consumers less sanguine about their financial situations and the economy, other data showed today.

Consumer Sentiment

The Thomson Reuters/University of Michigan’s final reading of sentiment in May declined more than forecast. The measure dropped to 81.9 from April’s 84.1. The median projection in the Bloomberg survey called for 82.5. Consumers were less optimistic about current economic conditions as well as the outlook than in April.

Stocks rose, with benchmark indexes climbing to records, as utility and consumer-staple shares rallied and investors weighed the data showing an uneven economic recovery. The Standard & Poor’s 500 Index advanced 0.2 percent to 1,923.57 at the close in New York.

Another report showed Chicago-area manufacturing expanded in May at the fastest pace in seven months as orders accelerated. Production and factory employment grew at a slower pace than a month earlier.

Personal spending, which accounts for almost 70 percent of the economy, was projected to climb 0.2 percent in April, according to the median forecast of 77 economists in a Bloomberg survey. Projections ranged from a decline of 0.1 percent to a gain of 0.5 percent.

Real Spending

Today’s figures showed that adjusting consumer spending for changes in prices, which generates the figures used to calculate gross domestic product, purchases fell 0.3 percent in April after a 0.8 percent jump a month earlier.

Inflation-adjusted spending on durable goods such as automobiles, decreased 0.5 percent after a 3.7 percent surge. Purchases of non-durable goods, which include gasoline, fell 0.3 percent.

Household outlays on services dropped 0.2 percent, the biggest decline since August 2012 that probably reflected smaller utility bills as temperatures warmed. The category also includes tourism, legal help, health care, and personal care items such as haircuts.

The setback in April prompted some economists to reduce their tracking estimates for second-quarter GDP. In addition to Pierpont’s Stanley, economists at Morgan Stanley trimmed their projection to 4 percent from 4.2 percent, while those at Barclays cut their estimate to 2.8 percent from 3.1 percent.

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