Americans increased spending in November for a fifth straight month and companies stepped up orders for equipment, more evidence the U.S. economy is gaining momentum heading into 2011.
Household purchases rose 0.4 percent after a 0.7 percent increase in October that was almost twice as large as previously estimated, figures from the Commerce Department showed today in Washington. The agency also reported a 2.6 percent gain in bookings for capital goods like computers and electronics.
Rising incomes and stock prices are giving consumers the wherewithal to boost the purchases that account for 70 percent of the world’s largest economy, improving earnings prospects for companies including Bed Bath & Beyond Inc. A drop in claims for jobless benefits reported today indicates employers are slowing the pace of firings, a step toward cutting unemployment from close to a 26-year high.
“The recovery is moving into higher gear,” said Jim O’Sullivan, global chief economist at MF Global Ltd. in New York. “The unemployment rate will gradually come down, which in turn should reduce the downward pressure on inflation.”
First-time filings for jobless insurance declined by 3,000 to 420,000 in the week ended Dec. 18, matching the median forecast in a Bloomberg News survey, according to Labor Department figures released today.
Confidence Climbs
Another report today showed a measure of consumer confidence climbed to a six-month high in December. The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 74.5, matching the median estimate in a Bloomberg survey, from 71.6 in November. The preliminary December reading was 74.2.
Stocks fell after a five-day rally sent the Standard & Poor’s 500 Index to a two-year high yesterday. The index fell 0.2 percent to 1,256.77 at the 4 p.m. close in New York. It has climbed 13 percent this year on prospects for economic growth. Treasury securities fell, sending the yield on the benchmark 10- year note up to 3.39 percent from 3.35 percent late yesterday.
Today’s reports add to a run of better-than-forecast data that have prompted economists to raise their estimates for economic growth. Retail sales increased more than forecast in November, the trade deficit shrank as exports jumped to a two- year high in October, and regional as well as nationwide figures showed factories are ramping up production.
Raising Forecasts
Economists at Morgan Stanley in New York today raised their tracking estimate for consumer spending this quarter to 4.1 percent from 3.5 percent. They project the economy will expand at a 4.5 percent pace in the October-December period, up from a prior estimate of 4.3 percent.
The extension of Bush-era income-tax cuts for two years, a reduction in the payroll tax next year and the Federal Reserve’s plan to buy $600 billion of Treasury securities are adding to the optimism.
Housing remains a weak spot for the economy as an overhang of unsold properties weighs on the market. Purchases of existing homes increased 5.5 percent to a 290,000 annual rate from a 275,000 pace in October that was slower than previously estimated, the Commerce Department said today. The median forecast of economists surveyed by Bloomberg projected a 300,000 pace.
“While the economic environment appears to have stabilized and is perhaps improving, it looks as if the consumer continues to face challenges resulting from the macroeconomic environment such as historically high unemployment rates,” Leonard Feinstein, co-chairman of Bed Bath & Beyond, said on a conference call yesterday.
Earnings Forecast
Union, New Jersey-based Bed Bath & Beyond yesterday increased its fiscal year earnings forecast to as much as $2.90 a share from a previous forecast of as much as $2.76.
Economists forecast consumer spending would rise 0.5 percent, according to the median of 75 projections in a Bloomberg survey. Estimates ranged from increases of 0.1 percent to 0.8 percent. The revisions made October’s gain in spending the biggest since August 2009.
Inflation remained below the Fed’s comfort zone. The central bank’s preferred price measure, which excludes food and fuel, rose 0.1 percent from the prior month and was up 0.8 percent from a year earlier, matching October’s 12-month gain as the smallest on record.
The economy grew at a 2.6 percent annual pace in the third quarter, the government reported yesterday. Consumer spending rose at a 2.4 percent pace, the fastest since the first three months of 2007.
Unemployment Rate
Growth hasn’t been fast enough to bring down the unemployment rate, which rose last month to 9.8 percent. Fed policy makers last week maintained their program to buy up to an additional $600 billion in Treasury securities through June to try to bolster the economy and support prices.
“Consumer spending has moved into a period of healthy growth and we do think even if we don’t maintain the extremely strong fourth quarter pace consumer spending will grow solidly into 2011,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York.
Today’s durable goods report from the Commerce Department showed that total orders dropped 1.3 percent, depressed by volatile demand for aircraft, and bookings excluding transportation equipment rose more than forecast.
Capital spending has been a source of strength for the world’s largest economy at the same time that household purchases are starting to accelerate. Manufacturing, the industry that helped pull the U.S. out of the worst recession since the 1930s, has been resilient throughout the recovery, bolstered in part by overseas demand for American-made goods.
Higher Profits
Some manufacturers are projecting higher profits as orders increase. Joy Global Inc., the maker of P&H and Joy mining equipment, last week announced a fiscal 2011 profit forecast that topped analysts’ estimates in a Bloomberg survey.
“The improving bookings rate supports our view that our mining customers will continue to increase their capital expenditure plans,” Mike Sutherlin, chief executive officer of the Milwaukee-based company, said in a Dec. 15 statement. “We continue to ramp up our production to meet this expected growth in demand.”
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