Consumer spending probably climbed at the slowest pace in almost a year and manufacturing cooled as dimmer job prospects and elevated commodity costs weighed on the U.S. expansion, economists said reports this week will show.
Purchases rose 0.1 percent in May, the smallest gain since June 2010, according to the median estimate of 63 economists in a survey before a Commerce Department figures tomorrow. The disaster in Japan also held back American factories this month, a survey of purchasing managers may show.
The highest gasoline prices since 2008 and unemployment hovering around 9 percent caused households to pare spending, which may temper demand at factories already contending with higher input expenses and supply chain disruptions. The recent drop in fuel costs bolsters Federal Reserve Chairmen’s prediction that the slowdown will be temporary.
“We’re seeing a deterioration in the labor market combined with still-high gasoline prices eating into discretionary spending,” said a chief U.S. economist at. “Probably, the worst of the Japanese supply chain disruptions are behind us.”
Economic growth slowed to a 1.9 percent annual rate in the first quarter from 3.1 percent in the previous three months as surging energy costs strained consumer finances.
Payrolls grew by 54,000 workers in May, the weakest reading in eight months, and the jobless rate climbed to 9.1 percent, the highest this year.
Manufacturing, which drove the recovery as growing overseas economies propelled U.S. exports, began to cool in the aftermath of Japan’s earthquake in March and as raw-material costs climbed. The Institute for Supply Management’s factory index fell to 51.8 this month from 53.5 in May. Readings above 50 signal expansion.
Reports released earlier this month showed manufacturing in the regions covered by the Federal Reserve Banks of Philadelphia and New York unexpectedly shrank in June.
Fed officials last week attributed some of the slowdown in the first half of the year to “factors that are likely to be temporary.” They lowered projections for economic growth this year to 2.7 percent to2.9 percent, down from forecasts of 3.1 percent to 3.3 percent in April. Unemployment will average 8.6 percent to 8.9 percent in the final three months of 2011, compared with the 8.4 percent to 8.7 percent projected in April.
The economic recovery appears to be proceeding at a moderate pace, though somewhat more slowly than the committee had expected.
Reports on housing this week may show that purchases will pick up even as property values continue to drop.
Pending home sales, or contract signings for existing homes, increased
2.5 percent in May after dropping 12 percent the prior month.
The S&P/Case-Shiller index of home prices in 20 cities, due June 28, likely fell in April from March, the 10th straight monthly drop on a seasonally adjusted basis.
Persistent high unemployment, a weak housing market, high fuel prices and inflation all put pressure on consumer. In response to the economic outlook, customers of the largest U.S. drugstore chain are shifting spending to essential goods.
The average price of a gallon of regular gasoline at the pump has dropped from $3.99 on May 4, the highest since July 2008, to $3.60 as of June 23. The decrease may be helping boost retailers’ shares. The Standard & Poor’s 500 Retailing Index of 92 companies has increased 3.7 percent since June 10 compared with a 0.2 percent decline in the broader S&P 500.
