U.S. Economy: Home Heating Costs Sap Other Spending from Bloomberg:
By Vincent Del Giudice
Washington, Dec. 22 (Bloomberg) -- Higher energy costs depressed consumer spending on cars and other goods in November and a measure of consumer optimism this month fell to a two-year low, signs the economy may slow further in the months ahead.
Consumer spending increased 0.3 percent after a 0.4 percent rise in October, the Commerce Department said. Excluding inflation adjustments related to higher costs for electricity, gas and home heating oil, spending rose 0.1 percent. That was the smallest gain in eight months and followed an October rise of 0.2 percent.
``We have no cash from stock market gains to offset the cost'' of oil and natural gas, said Christopher Low, chief economist at First Tennessee Capital markets in New York. ``Consumers must either borrow, or spend less on other things.''
The University of Michigan's index measuring consumer confidence fell to 98.4 in December, the lowest in more than two years, from 107.6 in November. That represented an 8.6 percent drop in the index, the largest since November 1991, according to data compiled by Bloomberg.
Separately, orders at U.S. manufacturers for durable goods recovered some lost ground in November, led by a surge in bookings for civilian aircraft, the department also reported today. The 2.3 percent rise followed a 6.5 percent decline in November.
The spending report also showed incomes rose 0.4 percent in November after a 0.1 percent decline in October, and analysts said that news was encouraging. ``We still see decent gains in wages and salaries,'' said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. ``Income growth is the key measure to determine whether we are headed into recession, and people have the funds to spend.''
Stocks Rally
Stocks rallied as investors looked for bargains among technology companies. The Nasdaq Composite Index rose for the first time in eight sessions, gaining 177 points, or 7.6 percent, to 2517.02. The Dow Jones Industrial Average rose 148 points, or 1.4 percent, to close at 10,635.56. Treasury securities also rose. The 10-year note rose 1/8 point, pushing down its yield to 2 basis points to 5 percent.
The latest government statistics show the economy cooling. Federal Reserve policy-makers warned this week of further ``weakness,'' suggesting the slowdown may more than desired and could threaten the record expansion, now in its 10th year.
After raising interest rates six times between June 1999 and this past May to keep the economy from overheating, the central bank's latest statement suggests Fed Chairman Alan Greenspan may push to cut interest rates as early as next month to stem the decline.
Gross domestic product expanded in the third quarter at a 2.2 percent annual rate, the weakest growth rate in four years and less than half the 5.6 percent pace of expansion in the second quarter.
A Limited Slowdown
Analysts surveyed by Bloomberg News currently expect fourth quarter growth at a 2.7 percent annual rate -- still far from a contraction.
``So far, this recession is largely limited to Wall Street and Detroit as Main Street is still in reasonably good shape,'' Naroff said.
The auto industry is showing clear signs of slowdown. Ford Motor Co. cut its first-quarter North American production plan 17 percent from a year earlier because of slower demand. ``It's clear that U.S. economic growth is slowing, and surveys of consumer sentiment point to lower levels of spending in the future,'' said Martin Inglis, vice president of Ford North America.
The factory report showed that orders for transportation equipment rose 9.1 percent in November after dropping 17.3 percent during October. This was due to a 78.4 percent jump in orders for commercial aircraft after a decline of 58.6 percent a month earlier.
Excluding transportation, orders rose 0.4 percent last month after dropping 3.1 percent in October. Excluding October, the November level of non-transportation orders, at $162.8 billion, was the lowest since April. Overall orders were up 1 percent from a year earlier, and shipments were unchanged.
Fed Concerns
The spending report's numbers confirm what Federal Reserve policy-makers noted on Tuesday: that rising energy costs and weakening share prices were damping growth. ``The drag on demand and profits from rising energy costs, as well as eroding consumer confidence, reports of substantial shortfalls in sales and earnings, and stress in some segments of the financial markets suggest that economic growth may be slowing further,'' the Fed's policy-making Open Market Committee said Tuesday after announcing it voted to hold the overnight lending rates banks charge each other at a nine-year high.
Americans can expect to pay as much as 50 percent more to heat their homes with natural gas or oil this winter, the U.S. Energy Department says. Supplies aren't keeping up with demand, as the U.S. braces for one of the coldest winters in the past decade. Natural gas for January delivery is at a 10-year high and heating oil prices are 50 percent higher than last December, industry experts said.
Electricity prices are rising partly because companies that generate power for sale to utilities rely on natural gas to fuel power plants.
Best Regards, J.T. |
