Consumers to Aid U.S. Recovery as Employment Grows

Consumers to Aid U.S. Recovery as Employment Grows, Survey Says

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By Shobhana Chandra and Kristy Scheuble

April 9 (Bloomberg) -- Consumers are emerging from a two- year hibernation to play a more active role in the U.S. recovery as unemployment recedes, according to economists surveyed by Bloomberg News.

Household purchases probably climbed at a 3 percent annual pace in the first quarter of the year, the best performance since 2007, according to the median estimate of 57 economists surveyed from April 1 to April 8. Analysts raised spending forecasts through the third quarter, and projected the jobless rate will fall more than anticipated last month.

“The biggest change is that the employment story is looking better,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts, who was among those raising spending estimates. “The consumer is feeling a little more comfortable and is a little more willing to spend.”

Auto sales rebounded last month, an early Easter buoyed retailers from Target Corp. to Saks Inc., and employers expanded payrolls by the most in three years, pointing to gains in incomes that will sustain buying power. A lack of inflation and concern over unemployment means the Federal Reserve will keep interest rates low through the third quarter, the survey showed.

Consumer spending, which accounts for about 70 percent of the world’s largest economy, will grow 2.3 percent this year, the most since 2007, according to the survey median. Purchases dropped 0.6 percent in 2009 and 0.2 percent in 2008, the first back-to-back decline since the 1930s.

More Jobs

Payrolls climbed by 162,000 workers in March, the third gain in the past five months, and the jobless rate held at 9.7 percent, where it’s been since January, the Labor Department reported last week. Unemployment has dropped from a 26-year high of 10.1 percent in October.

“Consumers are beginning to pull their weight,” said John Herrmann, senior fixed-income strategist at State Street Global Markets LLC in Boston. “The long-awaited recovery in the job market is finally starting to kick in. Not only was consumer spending very decent in February and March, but that momentum looks like it’ll be maintained in April.”

Luxury department store Saks and clothing chain Gap Inc. reported sales in the 12 months to March that exceeded analysts’ estimates. Target, the second-largest U.S. discount chain, raised its first-quarter profit projections after sales beat company estimates.

Easter fell eight days earlier this year, prompting the biggest year-over-year gain in same-store sales since March 1999, the New York-based International Council of Shopping Centers said yesterday.

Retail Shares

The reemergence of consumers is helping retail shares outperform the broader market. The Standard and Poor’s Supercomposite Retailing Index is up 14 percent since the beginning of this year, outpacing the 6.4 percent increase in the S&P 500 gauge.

Auto purchases climbed last month to the highest level since the government’s cash-for-clunkers plan in August boosted demand. Customers took advantage of discounts after Toyota Motor Corp. sweetened incentives to counter global recalls, spurring rivals to follow suit.

As auto sales moderate in coming months, so will spending. Household purchases will rise at a 2.5 percent pace from April through June and at a 2.4 percent rate in the following three months, according to the survey median. The estimates are up from the 2.2 percent gain projected last month.

“The consumer is coming back,” said John Lonski, chief economist at Moody’s Capital Markets Group in New York. “Continued growth in sales is compelling employers to add workers. We’re approaching the stage where the recovery is becoming self-sustaining.”

Increasing Headcount

Home Depot Inc., the largest U.S. home-improvement retailer, is among companies hiring as sales improve. The Atlanta-based merchant is adding store jobs for the first time in four years, Chief Executive Officer Frank Blake said.

“We have already added to our payroll this year,” Blake said in an interview last week. “As you have positive transaction growth, you need more associates.”

The 75 percent rebound in the S&P 500 Index from a 12-year low reached in March 2009, and a firming in home values are also helping improve the spending outlook, economists said.

At this stage, “it’s very important that equities continue to recover and house prices continue to stabilize,” Lonski said.

Economists anticipate the economy will expand 3 percent this year and next, according to the survey median, the same as last month.

Less Unemployment

Unemployment will drop to 9.4 percent by December, and average 9.6 percent for all of 2010 and 8.9 percent in 2011, this month’s survey showed.

While the financial crisis has abated and economic growth will probably reduce unemployment over the next year, the U.S. faces hurdles including the lack of a sustained rebound in housing, a “troubled” commercial real estate market and “very weak” hiring, Fed Chairman Ben S. Bernanke said this week.

His remarks reflected similar concerns expressed by other policy makers, including New York Fed President William Dudley, giving economists reason to rein in policy projections.

The central bank’s target for the rate on overnight loans between banks will end 2010 at 0.75 percent, the survey showed, reflecting a quarter-point increase in each of the last two meetings of the year.

To contact the reporter on this story: Shobh