Finance Helper

Consumer spending in the U.S. rose more than forecast in July, exceeding gains in incomes, a sign the improvement will not last without more jobs.

Purchases rose 0.4 percent, the most since March, after little change the prior month, Commerce Department figures showed today in Washington. Incomes climbed 0.2 percent, less than projected, and the savings rate dropped.

Disposable incomes, or the money left over after taxes, dropped for the first time since January after adjusting for inflation, showing the lack of jobs is hurting Americans’ spending power. Companies from Intel Corp. to J. Crew Group Inc. are cutting forecasts as unemployment and flagging confidence prompt households to scale back.

“This, so far, is allaying near-term double-dip concerns,” said Derek Holt, an economist at Scotia Capital Inc. in Toronto, referring to fears the world’s largest economy will tip back into a recession. “It nonetheless showcases very lackluster growth in the U.S. economy.”

Stock-index futures fell after the report, extending earlier losses, and Treasury securities rose. The contract of the Standard & Poor’s 500 Index was fell 0.3 percent to 1,060.3 at 8:54 a.m. in New York. The yield on the benchmark 10-year Treasury note dropped to 2.60 percent from 2.65 percent late on Aug. 27.

Exceeds Forecast

The median estimate of economists surveyed by Bloomberg News called for a 0.3 percent advance in spending after a previously reported unchanged result for June. The 71 projections ranged from unchanged to an increase of 0.5 percent.

Economists forecast incomes would also rise 0.3 percent, following no change in June, according to the Bloomberg survey.

Wages and salaries increased 0.3 percent. Inflation-adjusted incomes after taxes fell 0.1 percent last month after a 0.1 percent June increase.

The savings rate decreased to 5.9 percent last month from 6.2 percent in June.

Today’s report also showed inflation was accelerated. The gauge tied to spending patterns increased 1.5 percent from July 2009, compared with a 1.4 percent gain in the 12 months ended in June.

The Federal Reserve’s preferred price measure, which excludes food and fuel, rose 0.1 percent in July from the prior month and was up 1.4 percent from a year earlier, matching the median forecast of economists surveyed.

Price-Adjusted Gain

Adjusted for inflation, which are the figures used to calculate gross domestic product, consumer spending rose 0.2 percent after a 0.1 percent increase in July. The gain reflected an increase in purchases of automobiles.

Autos sold at an 11.6 million pace last month, up from an 11.2 million rate in June, according to industry figures. The gain extended a see-saw pattern over the past four months that shows demand is stagnating.

Dearborn, Michigan-based Ford has no plans to increase production of any of its current models because demand is fragile in the weak economic recovery, George Pipas, the automaker’s sales analyst, said in an interview this month J. Crew Inc., the New York-based retailer of sportswear, casual and career clothing, last week lowered its full-year earnings forecast.

“The continued economic uncertainty we’re seeing is leading us to take a more conservative outlook for the second half of the year,” Mickey Drexler, the retailer’s chief executive officer, said on a conference call.

Bernanke’s Outlook

Fed Chairman Ben S. Bernanke last week said the central bank “will do all that it can” to ensure a continuation of the economic recovery, and outlined steps it might take if the growth slows.

While the recovery has been slow to strengthen, “preconditions” for growth 2011 are “in place,” he said Aug. 27 at the Kansas City Fed’s annual monetary policy symposium in Jackson Hole, Wyoming. “Consumer spending may continue to grow relatively slowly in the near term,” he said.

The U.S. economy grew at a 1.6 percent annual rate in the second quarter, according to revised figures from the Commerce Department released Aug. 27. Corporate profits grew at the slowest rate in a year, employee wages were revised lower and consumer spending rose at a 2 percent annual rate, helped by electricity and natural gas demand.

Lack of Jobs

Companies created 51,000 jobs on average from May through July, down from 200,000 in the prior two months, according to Labor Department data. The jobless rate may climb to 9.6 percent this month from 9.5 percent in July, according to the median forecast of economists surveyed by Bloomberg before a Labor Department report this week.

The economy is a top issue for voters in the November congressional elections and polls show the public is increasingly skeptical of President Barack Obama’s performance. Public approval for the president’s handling of the economy was at 41 percent in an Aug. 11-16 Associated Press-GfK survey, an all-time low and down from 50 percent last July.

Economists have reduced their forecasts for third quarter growth over recent weeks as reports showed business spending weakening and home sales continuing to slide. Mark Zandi, chief economist at Moody’s Analytics Inc., last week said the likelihood of the economy slipping back into a recession is now 33 percent, up from a 20 percent chance 12 weeks ago.

Source: www.bloomberg.com.