U.S. Economy: Personal Spending, Confidence Climb
March 26 (Bloomberg) -- U.S. personal spending rose for the fifth straight month in February and consumer confidence unexpectedly climbed in March, suggesting job concerns aren't restraining the economic recovery.
Americans' purchases last month rose 0.2 percent after a 0.5 percent gain in January that was larger than first estimated, the Commerce Department reported in Washington. Personal incomes climbed 0.4 percent, the most since November, and the University of Michigan said its March sentiment index rose from a preliminary reading two weeks ago.
The reports are ``a positive sign for the resilience of the recovery,'' said Peter Kretzmer, a senior economist at Banc of America Securities in New York, who was the only economist out of 68 polled to forecast the 0.2 percent increase in spending. ``Consumer spending appears to be growing in fine fashion.''
Extra cash from tax refunds and mortgage refinancing is supplementing incomes and boosting sales at retailers such as Wal- Mart Stores Inc. and Target Corp., which have reported sales on the high side of their forecasts this month.
The weakest job growth of any expansion since World War II remains a threat to sustained consumer spending, which accounts for 70 percent of the economy, said Michael Moran, chief economist at Daiwa Securities America inc. in New York, in a note to clients this week. ``Without strong job growth, consumer spending will slow.''
Job Growth Lags
Payrolls have climbed by 61,000 workers on average over the last six months, less than a third of the average gain during the same period after the 1990-1991 recession. Democratic presidential candidate John Kerry, 60, who has criticized President George W. Bush, 57, for the loss of 2.3 million jobs since he took office, today proposed changes in tax laws that he said will help create 10 million U.S. jobs in four years.
``It is unfair to call a recovery a recovery when it is jobless,'' Kerry said in an interview following a speech at Wayne State University in Detroit. The senator from Massachusetts said Bush's approach to preserving U.S. jobs is the worst since policies of the Great Depression.
Consumer confidence unexpectedly jumped to 95.8 in the University of Michigan's index from a reading of 94.1 earlier this month and from 94.4 in February. The sentiment gauge, which is based on a survey of 500 households, found that assessments of current conditions and the economic outlook strengthened from two weeks ago and from last month.
High Anxiety
Economists surveyed by Bloomberg News expected a final reading of 93.7, based on the median of 52 estimates. Projections ranged from 88 to 95. The university is in Ann Arbor, Michigan.
The increase in confidence stemmed from rising incomes and low mortgage rates and came ``despite persistent concerns about slower job growth and higher gas prices,'' Richard Curtin, director of the Michigan surveys, said in a news release. He said the latest survey ``found the lowest level of confidence in government economic policies since President Bush was first elected.''
Job growth has been the missing ingredient in an economy that expanded at an average annual pace of 6.1 percent in the final six months of 2003. Gross domestic product may increase 4.6 percent this year, the most since 1984, according to a Bloomberg News poll of economists.
Greenspan `More Upbeat'
Federal Reserve Chairman Alan Greenspan has cited anxiety about jobs in speeches and testimony to Congress, most recently on March 11. ``Job insecurity is understandably significant when nearly 2 million members of our workforce have been unemployed for more than six months,'' he told the House Committee on Education and the Workforce.
Greenspan and other Fed officials have increased their public comments about the economy this year. Through yesterday, Greenspan had given 10 speeches and had appeared before congressional committees five times, compared with two speeches and four instances of testifying in the same period last year.
The central bank chairman has ``been noticeably more upbeat about the prospect of job growth than he probably has been in any time in memory,'' said Tom Schlesinger, executive director of Financial Markets Center, a research group in Philomont, Vermont, in an interview.
Kerry proposed ending the deferral of U.S. corporate taxes on their overseas profits in exchange for cutting the 35 percent corporate tax rate to 33.25 percent. He also would allow a one- year ``tax holiday'' in which companies would be taxed on overseas profits at a one-time rate of 10 percent, and he would give tax credits to companies that hire in the U.S.
Inflation Measure
Economists had estimated that spending rose 0.4 percent in February after a previously reported 0.4 percent increase in January, based on the median of 68 forecasts. They had also expected a 0.3 percent gain in February incomes following a 0.2 percent rise the month before.
The Commerce Department's measure of inflation tied to spending, the personal consumption expenditure price index, climbed 0.2 percent last month.
The index excluding volatile food and energy prices, a gauge followed by Greenspan and other policy makers, edged up 0.1 percent last month, capping a 1.1 percent rise since February 2003. The increase over the past 12 months compared with a 0.8 percent year-over-year gain in December that matched the lowest since record keeping began in 1960.
Treasuries Slump
Fed policy makers on March 16 reiterated they can be ``patient'' in changing the target for the overnight bank lending rate from 1 percent, the lowest since July 1958, as long as inflation remains subdued, employment gains don't jump and unused capacity remains.
The 10-year U.S. Treasury note had its biggest decline in two months after the rise in the inflation measure and consumer confidence. The 4 percent note due in February 2014 fell 25/32 to 101 12/32, boosting its yield 9 basis points to 3.83 percent. A basis point is 0.01 percentage point.
The Commerce Department said disposable income, or the money left after taxes, increased 0.4 percent in February following a 0.9 percent jump the previous month. Wages and salaries climbed 0.5 percent after gaining 0.7 percent.
Spending on durable goods such as autos, furniture and other items that last three years or more, fell 0.2 percent after dropping 3.2 percent in January.
Spending on non-durable goods jumped 0.1 percent after rising 1.8 percent. Spending on services, which account for almost 60 percent of all outlays, increased 0.4 percent after rising 0.6 percent.
Other sales are also rising. Wal-Mart, the world's largest retailer, said this week that U.S. sales this month are rising near the high end of its 4 percent to 6 percent forecast. The projected increase was the highest in 11 months.
Target, the No. 2 U.S. discount chain, also said this week that March sales have been higher than it expected.
To contact the reporter on this story:
Carlos Torres in Washington ctorres2@bloomberg.net.
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