U.S. consumer spending may have had the smallest gain in six months in April as auto sales slowed and higher energy prices left shoppers with less money for other goods and services, a survey of economists showed in advance of today's report from the Commerce Department. The expected increase of 0.2 percent, which would be the smallest since October, is based on the median estimate of 70 forecasts in a Bloomberg News survey. Incomes are forecast to have increased 0.5 percent after rising 0.4 percent. The report is set for 8:30 a.m. in Washington. Gasoline prices have soared amid concern over supplies. Higher borrowing costs have slowed the pace of mortgage refinancing, a source of cash in the past several quarters. Economists expect increased hiring and rising incomes to help limit a slowdown in consumer spending during the second half. ``The increase in interest rates and the rise in gas prices may be having some effect on the overall market and in detracting from consumer confidence,'' Lynn Reaser, chief economist at Banc of America Capital Management in St. Louis, said. ``Consumer spending should still grow moderately during the balance of the year.''
Business Index
A regional business index from the National Association of Purchasing Management-Chicago may fall to 62 in May from 63.9 in April, according to the median of forecasts. Readings higher than 50 still point to growth, and the index has already shown expansion for 12 months. The index gives a sense of how U.S. manufacturing has performed in the current month and precedes a national report Tuesday. The Chicago region produces 40 percent of U.S. motor vehicles, 35 percent of the nation's steel and almost half of its farm equipment. The report is due at 10 a.m. Washington time. The University of Michigan may report that its final consumer sentiment index for May registered 94.2, the same as both the preliminary May index and the final April index, according to the median of forecasts. Over the past year, the index has been as high at 103.8 in January and as low as 87.7 last September. The report is set for 9:50 a.m. Washington time.
Retail Sales
Consumer spending, which accounts for 70 percent of the economy, grew at a 3.9 percent annual pace from January through March, the Commerce Department in Washington said yesterday. Economists surveyed by Bloomberg News forecast spending to rise to 4 percent this quarter before slowing to about 3.4 percent on average in the second half. Retail sales, one component of personal spending, fell for the first time in seven months in April as purchases of autos and clothing slowed, according to a government report earlier this month. Automakers sold 16.4 million cars and light trucks at an annual pace in April, compared with 16.7 million the previous month, according to industry figures released earlier this month. Demand may rebound after Ford Motor Co. and other automakers increased rebates and made more no-interest loans available this month. Incentives rose 1.6 percent to $3,650 per vehicle in May from April, according to CNW Marketing Research. During the month, Ford and General Motors Corp. added to rebates on pickup trucks and sport-utility vehicles.
Oil Prices
Sales at U.S. retailers including Wal-Mart Stores Inc., Nordstrom Inc. and J.C. Penney Co. increased less than expected in April, when tax refunds began dwindling. Wal-Mart, the world's biggest retailer, said sales in April slowed to a 4.4 percent gain in April from 6 percent in March and 6.2 percent in February, compared with a year earlier. H. Lee Scott, Wal-Mart's chief executive officer, said this month that climbing gasoline prices have sliced more than $7 out of shoppers' weekly budgets. Crude oil and gasoline prices in New York surged to records this month on concern that supply won't be sufficient to meet rising demand. At the same time, mortgage rates have risen by almost a percentage point the past two months amid accelerated economic growth. That led to a 39 percent drop in refinancing applications during April, according to the Mortgage Bankers Association in Washington.
Wage Gains
A recovering labor market may limit a slowdown in consumer spending. The economy added 288,000 jobs in April on top of 337,000 in March, the biggest two-month increase in four years, the Labor Department reported May 7. Wages and salaries increased $57.8 billion in the fourth quarter, $18.3 billion more than previously estimated, based on revisions that incorporate wage statistics from state unemployment insurance data. Disposable income, adjusted for inflation, rose 4.9 percent in the first three months of the year, more than the 4.3 percent previously estimated, the government said yesterday. The revised income figures ``will provide a firm foundation for consumer spending in coming months once the drag from higher energy prices is behind us,'' Bruce Kasman and other economists at J.P. Morgan Securities said in a report. Economists including Stephen Stanley at RBS Greenwich Capital expect that business spending on equipment and inventories will augment consumer purchases to boost economic growth this year.
Business fixed investment, which includes spending on commercial construction as well as equipment and software, rose at a 5.8 percent annual rate in the first quarter, led by an increase in purchases of new equipment, the government said yesterday. Economists surveyed by Bloomberg forecast the economy to expand 4.6 percent this year, the fastest pace in two decades. ///www.bloomberg.com