Sep 10, 2008

Consumer Spending in U.S. to Stall, Hurting GrowthBy Shobhana Chandra and Andy BurtBloomberg.com

A record spending spree by U.S. consumers will come to an abrupt end this quarter as job losses cause Americans to restrain purchases, a Bloomberg News survey predicts.

Personal spending, the biggest part of the economy, will stall from July to September, three months earlier than predicted last month, according to the median estimate of 49 economists polled from Sept. 2 to Sept. 9. The slump will slow growth to less than half the prior quarter’s pace.

“The seemingly resilient U.S. consumer is finally buckling,” said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York, who cut spending forecasts for this quarter and the next. “We’re getting pretty close to a full-blown recession.”

Eight months of job cuts, wages that haven’t kept up with inflation, falling property values and restricted access to credit are likely to depress spending into 2009, the survey showed. The bailout of Fannie Mae and Freddie Mac will, at best, only prevent growth from slowing even more, economists said.

Yields on benchmark 10-year Treasuries today approached their lowest level in more than four months amid concern the economy will slow. Ten-year notes yielded 3.63 percent at 8:35 a.m. in New York after reaching 3.57 percent earlier in the day.

The world’s largest economy will expand at a 1.2 percent annual pace this quarter after growing 3.3 percent from April to June. Last quarter was boosted by a narrowing of the trade gap and a rise in spending propelled by the government’s tax rebates. Growth will slow to a 0.7 percent rate in the last three months of 2008, the survey showed.

After stagnating this quarter, consumer spending will grow at a 0.4 percent pace to end the year, and expand at a 1 percent rate in the first three months of 2009, the survey showed. Purchases grew 3 percent per quarter on average in the previous five years and have been rising since 1992, the longest string on record.

The job market is sending the surest signal the economy is contracting. Payrolls have shrunk by more than 600,000 workers so far this year and the jobless rate shot up 1.1 percentage points from May to August, the biggest four-month jump in almost 27 years, the Labor Department reported last week.

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