Spending by US consumers fell last month for a record fifth month, while home sales and orders for durable goods also declined as the recession deepened, economists said before reports this week.
Purchases dropped 0.7 percent last month, according to the median estimate of economists surveyed by Bloomberg News ahead of a US Commerce Department report on Wednesday. Combined sales of new and existing homes approached the lowest level in at least nine years, government and private figures may also show.
A lack of credit, plunging home values and mounting unemployment signal consumers will keep retrenching next year, hurting demand for big-ticket items like automobiles.
The Federal Reserve has pledged to use “all available tools” to limit the economic damage and US president-elect Barack Obama has said one of his top priorities will be to create jobs.
“The contraction in spending during the current downturn is likely to prove more severe than in any downturn since the Great Depression,” Bruce Kasman, chief economist at JPMorgan Chase & Co in New York, said in note to clients.
Kasman forecast the unemployment rate would climb to at least 8 percent by the middle of next year from the current 6.7 percent.
The economy has lost 1.9 million jobs so far this year and plunging home and stock prices are eroding consumer confidence and finances. Household net worth will probably drop by a record US$11 trillion by the end of this year from the peak reached in the third quarter of last year, Kasman said.
Retail sales fell 1.8 percent last month, also a record fifth consecutive drop, paced by declines in purchases of autos and building materials, the Commerce Department said on Dec. 12.
This week’s spending report includes data on services, such as utilities and medical care, not tracked by the retail figures. Personal income was unchanged last month after rising 0.3 percent the prior month, economists forecast the report would also show.
A three-year slump in home sales shows no signs of abating. Purchases of existing houses fell 1 percent last month to an annual pace of 4.93 million from 4.98 million, economists forecast the National Association of Realtors would report tomorrow. The group’s combined figures for houses and condominiums only go back to 1999.
Sales of new homes, due from the Commerce Department the same day, fell to an annual pace of 415,000 last month, the fewest in 17 years, the survey median showed.
As demand for housing has tumbled, homebuilders have cut construction by almost two-thirds since the January 2006 peak, helping to push the economy into the recession. With demand for building materials, appliances, furniture and autos drying up, orders for durable goods are forecast to show a second consecutive decline.
Bookings for the long-lasting items fell 3 percent last month after dropping 6.9 percent the prior month, economists forecast the Commerce Department’s Wednesday report would show.