Experts: US consumer spend stagnated in August

Washington: Consumer spending in the US probably stagnated in August after adjusting for inflation, showing the expansion is struggling to gain momentum, economists said before a report this week.

Household purchases, which account for about 70 per cent of the economy, rose 0.5 per cent last month after a 0.4 per cent increase in July, according to the median estimate of 63 economists surveyed by Bloomberg ahead of September 28 figures from the Commerce Department. The report may show the gain reflected a 0.5 per cent jump in prices, the biggest since June 2009.

A slackening job market and rising gasoline prices are squeezing household finances just as concern mounts that lawmakers may not be able to avoid the fiscal cliff of tax increases and spending cuts slated to take effect next year. Other reports this week may show business investment is also cooling, while housing is on the mend after a six-year slump.

“The US economy is clearly in a soft patch right now that could deteriorate into a stall,” Scott Anderson, chief economist at Bank of the West in San Francisco, said. “Consumer spending is really driven by jobs and wealth effects and the consumer’s ability to borrow. All of those things are still suggesting moderate growth.”

Consumer caution is rippling through retailers, restaurants and their supply chains, with railroads and cargo companies, including Norfolk Southern Corp., FedEx Corp. and United Parcel Service Inc. reporting slowing global demand.

The Commerce Department’s spending report will also show incomes grew 0.2 per cent last month after rising 0.3 per cent in July, according to the survey median.

August payrolls

Employers added 96,000 workers to payrolls last month, less than the 130,000 projected, and the unemployment rate fell to 8.1 per cent after 368,000 people left the workforce. The jobless rate has exceeded 8 per cent for 43 months, the longest stretch since monthly records began in 1948.

Retail sales rose 0.9 per cent in August, the most in six months, the Commerce Department reported earlier this month. Receipts were driven by demand for automobiles and higher gasoline prices that left consumers with less to spend on other goods.

“We’re seeing continued resilience in auto sales and building materials but beyond that, spending is pretty weak,” Anderson said.

The cost of fuel is continuing to be a drag on buying power this month. The pump price for a gallon of regular unleaded gasoline averaged $3.84 (Dh14) through Thursday, compared with $3.70 in August and $3.42 the prior month, according to data from AAA, the largest US auto group.

Manufacturing, long a pillar of the recovery from the recession, also is showing signs of stress amid the slowing global economy and the march toward the US fiscal cliff — $600 billion in tax increases and government spending cuts set to take effect next year should Congress not act by the end of 2012.

Eliminating jobs

Siemens AG said last week it will eliminate 615 jobs in the US in its wind energy business because of a drop in demand.

“Following the rapid ramp-up of the wind power industry over the past five years, the industry is facing a significant drop in new orders, and this has an unfortunate consequence on employment in this segment,” Munich-based Siemens said in a statement.

Durable goods orders, a measure of demand for capital equipment and machinery like turbines, will drop 5 per cent in August after rising 4.1 per cent the prior month, according to the median estimate of economists surveyed before a Thursday report from the Commerce Department.

While the drop was probably caused by a slump in volatile bookings for aircraft, economists project that excluding the transportation category, orders rose 0.3 per cent, recovering only half of July’s 0.6 per cent drop.

“If everyone in the economy holds their breath, we could be in recession or at least have a downshift,” Carl Riccadonna, senior US economist at Deutsche Bank Securities Inc., said in New York. “Already, lasting damage is being done” by the threat of the fiscal cliff, he said.

In a bid to stimulate spending and boost job creation, Federal Reserve policymakers this month promised to keep interest rates low and embarked on a plan to purchase $40 billion in mortgage debt every month until the labour market improves.

Mortgage rates down

The move has helped drive down the cost of buying a home. The average rate on a 30-year fixed mortgage matched a record low 3.49 per cent in the week ended Thursday, according to Freddie Mac.

Lower borrowing costs are boosting property sales. Purchases of new houses rose to a two-year high in August, according to the median estimate in a Bloomberg survey. Sales climbed to a 380,000 annual pace from a 372,000 rate in July, the Commerce Department may report on Wednesday. New homes made up 6.7 per cent of the residential market in 2011, down from a high of 15 per cent during the boom of the past decade.

On Monday, an index from S&P/Case-Shiller may show home prices in 20 US cities rose 1.1 per cent in July from the same time last time, the most since August 2010.

The Standard & Poor’s Homebuilding Index has climbed 87 per cent so far this year, compared with a 12 per cent increase for the S&P Machinery Index and a 16 per cent gain for the broader 500 gauge.