Spending by U.S. consumers may have bounced back in July as incomes grew and automakers boosted incentives in order to clear dealer lots, according to economists surveyed in advance of today's government report. The Commerce Department is likely to report that personal consumption expenditures rose 0.7 percent during the month after dropping 0.7 percent in June, based on the median of 50 forecasts in a survey by Bloomberg News. Incomes probably rose 0.5 percent, more than double the 0.2 percent increase in June. The report is scheduled for 8:30 a.m. in Washington. Near-record gasoline prices contributed to the June drop in consumer spending, the biggest since terrorists attacked New York and Washington almost three years ago. Gasoline became cheaper last month, automakers gave larger discounts, and a longer workweek added to incomes. The combination may have helped pull spending out of its second-quarter slump.
``The consumer is remaining fairly active, and that is very positive,'' said Gary Bigg, an economist at Banc of America Securities LLC in New York. ``Oil prices hopefully have peaked, and that can only be good news for the consumer.'' Consumer spending, which accounts for more than two-thirds of the economy, grew at a 1.6 percent annual pace in the second quarter, the weakest in three years, revised Commerce Department statistics showed Friday. The slowdown was a drag on growth. Gross domestic product expanded at a 2.8 percent annual rate, down from 4.5 percent in the first three months of the year. Spending is likely to accelerate this quarter, according to a forecast by Bigg and other economists at Banc of America.
Vehicle Sales
A total of 17.3 million cars and light trucks were sold at an annual rate in July, up 12 percent from the previous month, according to industry figures. The average incentive was $3,991 for each vehicle during the first half of July, up from $3,667 in June, according to CNW Marketing Research in Bandon, Oregon. Increased retail sales over the Internet and inventory building by stores contributed to a higher earnings forecast at FedEx Corp., the No. 2 package-delivery company in the U.S., behind United Parcel Service Inc. FedEx, based in Memphis, Tennessee, last week raised its profit outlook for 2005, the second time its done so in two months. ``We have strong momentum in our businesses and believe the economy continues on a sustainable expansion path,'' Alan Graf, chief financial officer of FedEx, said in a statement. Revisions to the June spending figures may be as important for the economic outlook as the expected rebound in July, according to Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado.
Retail Sales
Figures earlier this month from the Commerce Department showed that retail sales, part of consumer spending, fell half as much in June as initially estimated. June purchases excluding autos were revised to show a gain of 0.3 percent rather than the 0.2 percent drop reported previously. ``With the revisions there really wasn't any significant slowing in spending over the last couple of months,'' Englund said. ``We are going to see some pretty solid spending numbers.'' Englund is forecasting a 3 percent to 3.5 percent annualized increase in spending this quarter. Gasoline prices may still be high enough to crimp sales at discount chain stores including Wal-Mart Stores Inc. and Target Corp. A gallon of regular gasoline cost $1.884 last week, 27 percent higher than at the start of this year. The price climbed to a record $2.064 in late May, according to the Energy Department.
The International Council of Shopping Centers, which represents mall owners, this week reduced its estimate for August sales after Wal-Mart cut its forecast at stores open at least a year. Sales at all retailers are likely to increase 2.5 percent from a year earlier, compared with previous estimates of as much as a 4 percent increase, the group said. Discounters are more at risk because lower-income shoppers tend to curb spending the most when the price of gasoline rises, said Michael Niemira, the group's chief economist. ///www.bloomberg.com