Consumer spending probably climbed at the slowest pace in almost a year and manufacturing cooled as dimmer job prospects and elevated commodity costs weighed on the US expansion, economists said reports this week will show.
Purchases rose 0.1 per cent in May, the smallest gain since June 2010, according to the median estimate of 63 economists in a Bloomberg News survey before a Commerce Department figures tomorrow. The disaster in Japan also held back American factories this month, a survey of purchasing managers may show.
The highest gasoline prices since 2008 and unemployment hovering around 9 per cent caused households to pare spending, which may temper demand at factories already contending with higher input expenses and supply chain disruptions. The recent drop in fuel costs bolsters Federal Reserve Chairmen Ben S. Bernanke’s prediction that the slowdown will be temporary.
“We’re seeing a deterioration in the labour market combined with still-high gasoline prices eating into discretionary spending,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc in New York. “Probably, the worst of the Japanese supply chain disruptions are behind us.”
Economic growth slowed to a 1.9 per cent annual rate in the first quarter from 3.1 per cent in the previous three months as surging energy costs strained consumer finances.
Payrolls grew by 54,000 workers in May, the weakest reading in eight months, and the jobless rate climbed to 9.1 per cent, the highest this year, the Labour Department said June 3.
MANUFACTURING COOLS
Manufacturing, which drove the recovery as growing overseas economies propelled US exports, began to cool in the aftermath of Japan’s earthquake in March and as raw-material costs climbed. The Institute for Supply Management’s factory index fell to 51.8 this month from 53.5 in May, according to the survey median before the July 1 release. Readings above 50 signal expansion.
More From This Section
Reports released earlier this month showed manufacturing in the regions covered by the Federal Reserve Banks of Philadelphia and New York unexpectedly shrank in June.
Fed officials last week attributed some of the slowdown in the first half of the year to “factors that are likely to be temporary.” They lowered projections for economic growth this year to 2.7 per cent to 2.9 per cent, down from forecasts of 3.1 per cent to 3.3 per cent in April. Unemployment will average 8.6 per cent to 8.9 per cent in the final three months of 2011, compared with the 8.4 per cent to 8.7 per cent projected in April.
‘MODERATE’ RECOVERY
“The economic recovery appears to be proceeding at a moderate pace, though somewhat more slowly than the committee had expected,” Fed Chairman Ben S. Bernanke told reporters on June 22 after the Federal Open Market Committee met. Reports on housing this week may show that purchases will pick up even as property values continue to drop.
Pending home sales, or contract signings for existing homes, increased 2.5 per cent in May after dropping 12 per cent the prior month, economists forecast the National Association of Realtors will report on June 29. The S&P/Case-Shiller index of home prices in 20 cities, due June 28, likely fell in April from March, the 10the straight monthly drop on a seasonally adjusted basis.
“Persistent high unemployment, a weak housing market, high fuel prices and inflation all put pressure on consumers,” Greg Wasson, president and chief executive officer of Walgreen Co (WAG), said on a June 21 earnings call. In response to the economic outlook, customers of the largest US drugstore chain are shifting spending to essential goods, he said.
The Deerfield, Illinois-based company has been raising prices to combat more expensive input costs, including fuel, Chief Financial Officer Wade Miquelon said during the call.
The average price of a gallon of regular gasoline at the pump has dropped from $3.99 on May 4, the highest since July 2008, to $3.60 as of June 23. The decrease may be helping boost retailers’ shares.