U.S. March Consumer Spending Fell More Than Forecast: This Marks The Beginning

This is the beginning of the true decline in consumer spending that will continue for a year if not years (probably years).

The millions and millions and millions of layoffs, wage cuts, loss of retirement and investment portfolio wealth, precipitous drop in home values, all of the above which are continuing, are just now about to slam the U.S. and global economy.

One critical indicator of this is that U.S. consumers are now no longer able to finance their living standards on their credit cards, and have begun to dip into their savings (whatever they have) via use of debit cars, as Visa reported yesterday.

March marks the true beginning.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_oglDHVKGyI&refer=home

U.S. March Consumer Spending Fell More Than Forecast (Update1)
Share | Email | Print | A A A

By Bob Willis

April 30 (Bloomberg) -- U.S. consumer spending declined more than forecast in March after a two-month spurt, ending an unexpectedly strong quarter on a soft note and signaling any economic recovery will be gradual.

Purchases decreased 0.2 percent after a 0.4 percent gain in February that was larger than previously estimated, the Commerce Department said today in Washington. Incomes fell for the fifth time in the last six months.

Mounting unemployment and falling home values remain challenges for consumers, suggesting the biggest part of the economy may falter again in the second quarter and prolong the recession. Still, low borrowing costs and government stimulus may boost demand in the second half of the year, easing the economic slump.

“Consumers are not in a spending mode; they’re all about increasing savings and paying off debt.” Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report.

Another government report showed fewer Americans filed first-time applications for unemployment insurance last week. Initial jobless claims decreased by 14,000 to a less-than- forecast 631,000 in the week that ended April 25, Labor Department figures showed today in Washington. The number of people staying on jobless benefit rolls rose 133,000 to 6.27 million, the 13th straight week the figure has set a record.

Stock-Index Futures

Stock-index futures were higher after the reports, with futures on the Standard & Poor’s 500 index up 1.5 percent to 881.8 as of 8:35 a.m. in New York. Treasuries fell, pushing yields higher. Benchmark 10-year notes yielded 3.13 percent, up 3 basis points from yesterday.

Economists forecast spending would fall 0.1 percent, after an originally reported 0.2 percent gain the prior month, according to the median of 69 estimates in a Bloomberg News survey. Projections ranged from a decline of 0.5 percent to a 0.4 percent increase.

Incomes dropped 0.3 percent, after a 0.2 percent decrease in February.

Today’s report also showed inflation cooled. The price gauge tied to spending patterns rose 0.6 from March 2008, compared with a 0.9 percent increase in the year ended in February. The Fed’s preferred gauge of prices, which excludes food and fuel, climbed 0.2 percent for the third month and was up 1.8 percent from the same time last year.

Price Adjusted

Adjusted for inflation, spending also dropped 0.2 percent following a 0.1 percent gain the prior month. Purchases decelerated throughout the quarter, putting the March total below the average for the period.

The savings rate improved to 4.2 percent from 4 percent the prior month as consumers cut back. The higher the rate, the more Americans are saving.

Disposable income, or the money left over after taxes, was unchanged for a second month. Adjusted for inflation, it was also little changed following a 0.3 percent decrease.

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, fell 0.8 percent last month after dropping 0.6 percent in February. Purchases of non-durable goods decreased 0.6 percent and spending on services climbed 0.1 percent.

Fed Action

Federal Reserve officials yesterday voted to keep the benchmark overnight lending rate between banks in a range of zero to 0.25 percent and said the pace of economic contraction “appears to be somewhat slower.”

“Household spending has shown signs of stabilizing, but remains constrained by ongoing job losses, lower housing wealth and tight credit,” the Fed’s Open Market Committee said in a statement after its two-day meeting in Washington.

The economy shrank at a 6.1 percent annual pace in the first quarter after falling at a 6.3 percent rate in the previous three months, making this the worst recession in a half century, figures from Commerce yesterday showed.

Consumer spending, which accounts for 70 percent of the economy, rose at a 2.2 percent pace in the first quarter, more than twice as much as economists anticipated and the biggest gain in two years, the report also showed.

Buying Essentials

Still, consumers aren’t being extravagant. David Dillon, chief executive officer at Kroger Co., the largest U.S. grocery chain, said a drop in restaurant spending is boosting his company’s sales of rotisserie chickens and other deli foods to people “frightened” by the recession.

“We are seeing customers buy fewer items, which suggests that they are not buying some of the discretionary items that they might have otherwise purchased,” Dillon told analysts this week in New York. “Obviously they’re moving more to value.”

The auto industry last month recovered from the weakest sales in three decades by luring customers with bigger incentives. Still, carmakers General Motors Corp. and Chrysler LLC are fighting to survive.

“We did see signs of life and we think we’re going to carry a little bit of momentum into April,” Mark LaNeve, GM’s president for North America sales, said in an interview with Bloomberg Television on April 1. “Hopefully, we have bounced along and found the bottom and we’ll start firming up this industry.”

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
Last Updated: April 30, 2009 08:45 EDT