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Viewed 4/9/09
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U.S. Consumer Spending to Drop Again After Pickup, Survey Shows
By Bob Willis and Kristy Scheuble




April 9 (Bloomberg) -- U.S. consumer spending will falter after a first-quarter spurt and
recover only gradually toward the end of the year, a monthly Bloomberg News survey
showed.
Purchases will drop at a 0.5 percent pace from April to June and grow at an average 0.9
percent rate the next six months, according to the median of 51 projections in a survey
taken from March 30 to April 8. The estimated 0.5 percent first- quarter gain would break
the longest slide since 1991.
Soaring unemployment and tattered household finances are forcing Americans to pay off
debt and save more, preventing the economy from gaining traction. What’s shaping up to
be the worst global recession in the postwar era means companies are also cutting back
and foreigners are buying fewer U.S.-made goods.
“We are going to have an economic recovery, but it won’t feel like one most of us are
used to,” said John Silvia, chief economist at Wachovia Corp. in Charlotte, North
Carolina. “The positive consumer numbers are being offset by a little weaker business
investment and a lot weaker numbers on exports.”
Unemployment will end the year at 9.5 percent, a percentage point more than last
month’s 25-year high of 8.5 percent, according to the survey median. Employers cut
payrolls by 663,000 workers last month, and 5.1 million Americans have lost their jobs
since the recession began in December 2007, the Labor Department reported last week.
Subdued spending will constrain the economy for much of the year. Gross domestic
product fell at a 5 percent annual pace last quarter and will drop at a 2 percent rate in the
following three months, according to the survey. The economy will then grow at a 0.4
percent pace in the third quarter, and only improve at a 1.5 percent rate in the last three
months of 2009.
Worst Since 1946
For the entire year, the world’s largest economy is projected to shrink 2.5 percent, the
same as estimated last month and the worst performance since 1946.
“We’re ever so slowly climbing out of the depths of an extremely deep recession,” said
Richard Yamarone, chief economist at Argus Research in New York. “You have stimulus
in the pipeline and energy prices that are not restrictive.”
A gallon of regular gasoline at the pump has averaged $1.90 so far this year, down from a
record $4.11 in July 2008, according to AAA, the nation’s biggest motoring association.
The drop has given consumers extra cash even as the loss of jobs causes incomes to
soften.
Lots of Stimulus
President Barack Obama signed into law a $787 billion stimulus plan on Feb. 17 that
included tax cuts and spending on infrastructure projects that he pledged will create or
save 3.5 million jobs. The Treasury Department is also moving to repair the damaged
financial system and lower record foreclosures, while the Federal Reserve is flooding
markets with cash to boost borrowing and spending.
Fed Chairman Ben S. Bernanke last month said unemployment could top 10 percent in a
worst-case scenario. Job cuts are spreading from manufacturers such as General Motors
Corp. and Caterpillar Inc. to health-care operators and state and federal agencies. The
central bank has brought its key lending rate close to zero and is buying Treasuries to
push down borrowing costs and boost purchases of houses and cars.
Lower interest rates on mortgages and business loans led Bernanke to tell CBS Corp.’s
“60 Minutes” on March 15 that he sees “green shoots” in some financial markets, and
that the pace of economic decline “will begin to moderate.”
The threat of deflation, or an extended drop in prices, will lessen as the economy begins
to grow again. Consumer prices will rise 1.2 percent this year, according to forecasts,
after being almost stagnant in recent months.
Lid on Prices
Wal-Mart Stores Inc. is among merchants keeping inflation low. The world’s biggest
retailer plans to sell more than 80 new products, including thin-crust pizza, under its store
brand to draw in bargain hunters.
Some economists fear the surge in government spending and the trillions of dollars the
Fed has pumped into financial markets will eventually cause prices to flare.
“Right now, it is too early to worry about inflation,” said Wachovia’s Silvia. “I am
concerned longer term. Both Obama and Bernanke are going to be severely challenged to
pull all this stimulus in once the economy starts to fully recover in the middle of 2010
and early 2011.”
To contact the reporters for this story: Bob Willis in Washington at
bwillis@bloomberg.net; Kristy Scheuble in Washington at kmckeaney@bloomberg.net

								
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