Consumer Spending Falls for First Time in Six Months

Friday, 29 Aug 2014 09:03 AM

 

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Consumer spending in the U.S. unexpectedly dropped in July for the first time in six months, a sign households are lagging behind as wages fail to accelerate.

Household purchases decreased 0.1 percent after increasing 0.4 percent in June, Commerce Department figures showed today in Washington. None of the 79 economists in a Bloomberg survey projected a decrease. Incomes climbed 0.2 percent, the smallest monthly advance this year.

Consumer spending, which accounts for about 70 percent of the economy, has been held back by tight credit and meager wage growth that is barely able to keep up with inflation. A sustained labor market upswing is needed to lift earnings and help boost outlays at retailers such as Ross Stores Inc.

“It’s a weak starting point for the third quarter,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets LLC in New York. “It’s going to lead to a markdown in third-quarter forecasts.” RBC Capital Markets is the top forecaster of personal spending over the past two years, according to data collected by Bloomberg.

Stock-index futures trimmed earlier gains after the report. The contract on the Standard & Poor’s 500 Index expiring in September rose 0.1 percent to 1,999.3 at 8:44 a.m. in New York.

Projections for spending in the Bloomberg survey ranged from little changed to a 0.4 percent gain. The June reading was unrevised. The Bloomberg survey median called for incomes to rise 0.3 percent.

Purchases last month dropped 0.2 percent following a 0.2 percent June increase after adjusting for inflation, the data used to calculate gross domestic product.

Spending Breakdown

Spending on durable goods, including cars and trucks, declined 0.6 percent after adjusting for inflation, following a 0.5 percent advance in June. Purchases of non-durable goods, which include fuel and clothing, fell 0.2 percent.

Household outlays on services decreased 0.1 percent. The diverse category, which includes health care, utilities, tourism, and legal work, is difficult for the government to estimate accurately in the preliminary report.

Prices tied to consumer spending rose 1.6 percent in the year ended July, the same as in the prior month. Federal Reserve policy makers aim for price increases of 2 percent a year.

The core prices category, which excludes fuel and food, increased 0.1 percent in July from the prior month and was up 1.5 percent from a year ago.

Retailers Struggling

Williams-Sonoma Inc. and Guess? Inc. are among merchants coping with a retail slump that has them relying on sales and other promotions to drive customer traffic.

At Ross Stores Inc., a discount retailer based in Pleasanton, California, traffic is flat and the number of transactions hasn’t increased from a year ago. Consumers continue to be “under pressure,” President and Chief Operating Officer Michael O’Sullivan said.

“It’s pretty apparent that the low- to moderate-income customer is struggling,” Sullivan said on an Aug. 21 earnings call. “We don’t see a lot of evidence that that’s going to change in the back half. We could be wrong but we don’t see a lot of evidence for that, and we expect the environment to remain pretty promotional.”

© Copyright 2014 Bloomberg News. All rights reserved.

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