/www.bloomberg.com/ By Brendan Murray and Simon Kennedy
Washington, (Bloomberg) -- Americans' spending increased in November at the fastest pace in four months and a measure of consumer sentiment rose, fueling an economic recovery that may gain strength next year.
The 0.5 percent rise in spending followed a 0.4 percent October increase and reflected a pickup in purchases of autos and other durable goods, Commerce Department figures showed. The University of Michigan's sentiment index rose this month to 86.7 from 84.2 in November, people with access to the revised report said. The index set a nine-year low of 80.6 in October.
``The economy is poised for a moderate bounce-back,'' said Steven Wieting, a senior economist at Salomon Smith Barney Inc.
Consumer spending accounts for two-thirds of the economy and has underpinned the recovery as companies hold off investing. The economy is expected to grow 2.5 percent in the first quarter and speed up through the rest of the year, a Dec. 17 survey by Bloomberg News showed.
Personal income, which rose 0.3 percent in November for a fourth straight month, is boosting spending ``and with consumer confidence improving, we should see solid gains through the next few months,'' said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania, an independent forecasting group that caters to clients in financial services.
An unemployment rate at 6 percent, matching an eight-year high, is restraining holiday sales for some retailers. Wal-Mart Stores Inc. and Federated Department Stores Inc. said December sales were at the low end of their forecasts. Wal-Mart has forecast a gain of 3 percent to 5 percent in sales at stores open at least a year. Federated, the parent of Macy's and Bloomingdale's, said sales are declining more than its November- December forecast for a drop of as much as 2.5 percent.
U.S. Markets
The Dow Jones Industrial Average fell for the fourth day in five, dropping 18.03 points, or 0.21 percent, to close at 8493.29. Wal-Mart Stores Inc. led retailers lower as holiday sales lagged, and Citigroup Inc. dropped after saying costs to cover loan losses and legal settlements will cut its quarterly earnings by $1.5 billion. Gains in computer-related shares such as Microsoft Corp. helped lift the Standard & Poor's 500 Index 1.63 points, or 0.18 percent, to close at 897.38.
The increase in personal spending in November and October suggests consumption growth of between 0.5 percentage point and 1 percentage point at an annual rate in the fourth quarter, according to Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez in New York.
Economists surveyed by Bloomberg earlier this month said the economy is probably growing at a 1.5 percent annual rate in the fourth quarter, according to the median of 68 forecasts.
Buying Goods
Buying of durable goods such as autos, appliances and other big-ticket long-lasting items grew 1.9 percent in November, the biggest gain since August, after declining 1.3 percent the prior month, the Commerce report showed.
Purchases of non-durable goods in November increased 0.4 percent, at a monthly rate in chained 1996 dollars, after rising 0.6 percent in October. Spending on services, which account for half of the report, gained 0.2 percent after increasing 0.3 percent in September.
The University of Michigan's confidence report showed the current conditions index, which reflects Americans' perception of their financial situation and whether it's a good time to buy, rose to 96 from 93.1 in November. The expectations index, based on optimism about the next one to five years, increased to 80.8 from 78.5 last month.
Consumer Confidence
A series of studies have shown consumer confidence surveys, particularly the University of Michigan index, have little ability to predict consumer spending. In 1998, Federal Reserve Bank of New York researchers Jason Bram and Sydney Ludvigson found the University of Michigan survey was a ``weak'' forecaster that ``has little explanatory power for categories of expenditure other than motor vehicles.''
Fed Chairman Alan Greenspan dismissed the consumer confidence surveys in testimony to Congress in July. ``Our interest is actually what people do, not what they say,'' Greenspan said. The surveys ``don't necessarily represent what people are going to do.''
In November, the unemployment rate rose to 6 percent, matching an eight-year high set in April, as the number of jobs fell by 40,000. A loss of 15,000 or more jobs in December would cap the second straight year of declining payrolls, which hasn't occurred since back-to-back declines in 1957 and 1958.
`Job Growth Is Real Key'
``In the final analysis, job growth is the real key to confidence and spending,'' said David Rosenberg, chief economist of Merrill Lynch & Co. ``Based on anecdotal evidence like hiring intention surveys and help-wanted ads, the job market, at best, has stopped bleeding.''
Discount chains such as Wal-Mart usually see the biggest gains in the final weekend before Christmas. Consumers delaying purchases amid concern about the slowing economy and employment have led to sluggish retail sales so far. The Saturday before Christmas last year was the busiest day of the season, and the final week contributed 34 percent of the period's sales.
Spending may be restrained if consumers have to pay more at the gasoline pump. The average price of unleaded gasoline was $1.36 a gallon in the week ended Dec. 16, up 28 percent from the same time a year ago.