Unemployment Will Suppress U.S. Consumer Spending, Survey Shows

Oct. 9 (Bloomberg) -- The rebound in U.S. consumer spending, driven by government stimulus, will wane as the unemployment rate surpasses 10 percent, a survey of economists showed.

Household purchases will grow at a 1 percent annual rate this quarter after rising at a 2.4 percent pace in the previous three months, according to the median forecast of 57 economists surveyed by Bloomberg News from Oct. 1 to Oct. 8. Analysts also marked down spending estimates for the first quarter of 2010.

“You just can’t see a lot of strength on the consumer side given how battered income is from job losses and weak hourly wage growth,” said David Greenlaw, chief fixed-income economist at Morgan Stanley & Co. in New York. “We’ve got a gradual recovery in the overall economy, but it’s not vigorous enough to knock down the unemployment rate by much.”

Auto sales plunged 35 percent last month after the “cash- for-clunkers” program expired, indicating gains in business and government spending will be needed to sustain the recovery into 2010. Mounting joblessness is intensifying pressure on the Obama administration to consider additional measures to boost hiring heading into next year’s Congressional elections.

Rising unemployment “could be enough to push the economy back into recession,” said Gus Faucher, director of macroeconomic research at Moody’s Economy.com in West Chester, Pennsylvania. “There is going to be more stimulus. The economy needs some support until consumer spending kicks in.”

Obama’s Options

Obama is considering a mix of options, including a boost in transportation spending and extensions of expiring bills that will prolong unemployment benefits and a tax credit for first-time homebuyers, administration officials have told allies in Congress.

The White House is balancing rising concern about unemployment with a budget deficit the Congressional Budget Office estimates will total $1.6 trillion for 2009, and $1.4 trillion in 2010.

The economy will probably grow at a 2.4 percent annual rate this quarter after expanding at a 3.2 percent pace from July through September, according to the survey median. Gross domestic product will increase 2.4 percent next year and 2.8 percent in 2011, the survey showed, less than the 3.4 percent average over the past six decades.

Analysts put the odds of the U.S. dipping back into a recession in the next 12 months at 20 percent, down from 25 percent last month. Easing concern that the economy will falter has helped push the Standard & Poor’s 500 Index up more than 57 percent from a 12-year low reached on March 9.

Spending Gains

Household spending will grow at a 1.5 percent pace in the first three months of 2010, and 1.8 percent in the second quarter, the survey showed.

The government’s $3 billion “clunkers” program caused consumer spending to rise 1.3 percent in August, the most in almost eight years, the Commerce Department reported last week. Following the program’s expiration, car sales plunged to the lowest level since February.

“Cash for clunkers merely pulled consumption forward from the fourth quarter, rather than as a result of any improvement in the consumer’s situation,” said David Semmens, an economist at Standard Chartered Bank in New York. “With consumers holding back on spending while they rebuild their balance sheets, we are in uncharted territory.”

U.S. holiday sales for the last two months of the year will probably fall 1 percent from the same period in 2008, the National Retail Federation forecast on Oct. 6. Last year’s 3.4 percent decline was the first drop since the Washington-based NRF started tracking the data in 1995.

Less Debt

“We are not counting on the economy,” John Mahoney, chief financial officer of Staples Inc., said in a Bloomberg Television interview this week. Shoppers are focusing on reducing debt instead of spending, Mahoney said, and consumers remain reluctant to make non-essential purchases. Staples is the world’s largest retailer of office supplies.

Consumer credit has dropped by a record $118.8 billion since peaking in July 2008, according to figures from the Federal Reserve, as Americans boosted savings and banks and credit-card companies restricted lending. The figures don’t include mortgage borrowing, which is also down.

The economic expansion won’t be enough to keep the jobless rate from exceeding 10 percent in the first quarter of 2010, the survey showed. Unemployment will average 9.9 percent next year and 9.1 percent in 2011, higher than projected last month, according to the median estimate.

Fed Chairman Ben S. Bernanke last week said the jobless rate may be above 9 percent at the end of 2010.

Economists this month anticipated policy makers will wait until the third quarter of 2010 to start raising the benchmark interest rate, the same as projected in September, as unemployment rises and inflation slows. The Fed’s rate has been near zero since December, the lowest on record.

The world’s largest economy contracted 3.8 percent in the year ended in June, the worst economic slump since the 1930s.