21 Dec 2008
Dec. 21 (Bloomberg) -- Spending by American consumers fell in November 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 Commerce Department report Dec. 24. 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 into 2009, hurting demand for big-ticket items like automobiles. The Federal Reserve has pledged to use "all available tools" to limit the economic damage and 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 jobless rate will 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 $11 trillion by the end of this year from the peak reached in the third quarter of 2007, according to Kasman.
Auto, Housing Slumps
Retail sales fell 1.8 percent in November, also a record fifth consecutive drop, paced by declines in purchases of autos and building materials, the Commerce Department said 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 in November after rising 0.3 percent the prior month, economists forecast the report will also show.
Auto sales sank last month to the lowest level since 1982, according to industry figures. President George W. Bush last week announced that General Motors Corp. and Chrysler LLC will get $13.4 billion in initial government loans to keep operating while they restructure operations to return to profitability.
"This action will help to preserve many jobs and support the continued operation of GM and the many suppliers, dealers and small businesses across the country that depend on our company and our industry," GM Chief Executive Officer Rick Wagoner said at a news conference in Detroit on Dec. 19.
Fed Action
The Fed on Dec. 16 lowered the benchmark overnight lending rate between banks to between zero and 0.25 percent from 1 percent. Noting that "the outlook for economic activity has weakened further," the central bank pledged to "employ all available tools" to restore growth and unclog credit markets.
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 will report Dec. 23. 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 in November, the fewest in 17 years, according to the survey median.
As demand for housing has tumbled, homebuilders have cut construction by almost two-thirds since the Jan. 2006 peak, helping to push the economy into the recession that began a year ago. 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 in November after dropping 6.9 percent the prior month, economists forecast the Commerce Department's Dec. 24 report will show.
Finally, retreating fuel prices helped lift consumer sentiment this month from a 28-year low, economists project a report from Reuters/University of Michigan on Dec. 23 will show. The confidence index probably rose to 58.7 from 55.3 in November, according to the survey.
Bloomberg Survey
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Release Period Prior Median
Indicator Date Value Forecast
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GDP Annual QOQ% 12/23 3Q F -0.5% -0.5%
Personal Consump. QOQ% 12/23 3Q F -3.7% -3.7%
GDP Prices QOQ% 12/23 3Q F 4.2% 4.2%
U of Mich Conf. Index 12/23 Dec. F 59.1 58.7
New Home Sales ,000s 12/23 Nov. 433 415
New Home Sales MOM% 12/23 Nov. -5.3% -4.2%
Exist Homes Mlns 12/23 Nov. 4.98 4.93
Exist Homes MOM% 12/23 Nov. -3.1% -1.0%
Pers Inc MOM% 12/24 Nov. 0.3% 0.0%
Pers Spend MOM% 12/24 Nov. -1.0% -0.7%
PCE Deflator YOY% 12/24 Nov. 3.2% 1.5%
Core PCE Prices MOM% 12/24 Nov. 0.0% 0.0%
Core PCE Prices YOY% 12/24 Nov. 2.1% 2.0%
Durables Orders MOM% 12/24 Nov. -6.9% -3.0%
Durables Ex-Trans MOM% 12/24 Nov. -5.4% -3.0%
Initial Claims ,000s 12/24 Dec. 20 554 554
Cont. Claims ,000s 12/24 Dec. 13 4384 4410
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