Mon, Sep 24, 2012 - Page 15 News List

Grim numbers all around as US nears US$600b fiscal cliff

STEEP DROP AHEAD:Data showed consumer spending was standing still as household finances contracted ahead of the looming raft of tax hikes

Bloomberg

Consumer spending in the US probably stagnated last month after adjusting for inflation, showing the expansion is struggling to gain momentum, economists said before a report this week.

Household purchases, which account for about 70 percent of the US’ economy, rose 0.5 percent last month after a 0.4 percent increase in July, according to the median estimate of 63 economists surveyed by Bloomberg ahead of Friday’s figures from the US Department of Commerce. The report may show the gain reflected a 0.5 percent jump in prices, the biggest since June 2009.

A slackening job market and rising gasoline prices are squeezing household finances just as concern mounts that lawmakers may not be able to avoid the fiscal cliff of tax increases and spending cuts slated to take effect next year. Other reports this week may show business investment is also cooling, while housing is on the mend after a six-year slump.

“The US economy is clearly in a soft patch right now that could deteriorate into a stall,” said Scott Anderson, chief economist at Bank of the West in San Francisco. “Consumer spending is really driven by jobs and wealth effects and the consumer’s ability to borrow. All of those things are still suggesting moderate growth.”

Consumer caution is rippling through retailers, restaurants and their supply chains, with railroads and cargo companies including Norfolk Southern Corp, FedEx Corp and United Parcel Service Inc reporting slowing global demand.

The Commerce Department’s spending report will also show incomes grew 0.2 percent last month after rising 0.3 percent in July, according to the survey median.

Employers added 96,000 workers to payrolls last month, less than the 130,000 projected, and the unemployment rate fell to 8.1 percent after 368,000 people left the workforce. The jobless rate has exceeded 8 percent for 43 months, the longest stretch since monthly records began in 1948.

Retail sales rose 0.9 percent last month, the most in six months, the Commerce Department reported earlier this month. Receipts were driven by demand for automobiles and higher gasoline prices that left consumers with less to spend on other goods.

“We’re seeing continued resilience in auto sales and building materials but beyond that spending is pretty weak,” Anderson said.

The cost of fuel is continuing to be a drag on buying power this month. The pump price for a gallon of regular unleaded gasoline averaged US$3.84 through Thursday compared with US$3.70 last month and US$3.42 the prior month, according to data from AAA, the largest US auto group.

Manufacturing, long a pillar of the recovery from the recession, also is showing signs of stress amid the slowing global economy and the march toward the US fiscal cliff — US$600 billion in tax increases and government spending cuts set to take effect next year should US Congress not act by the end of this year.

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