April 30 (Bloomberg) -- Consumer spending in the U.S. fell more than forecast at the end of the first quarter as mounting job losses threatened to weigh on a projected economic recovery later this year.
Purchases decreased 0.2 percent in March, the first drop this year, the Commerce Department said today in Washington. Other reports showed wages and benefits rose at the slowest pace on record and firings continued, straining American workers.
“The consumer is coming out of a state of shock into something more positive, but not booming,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “I don’t think we’ll see the big declines in spending we had late last year, but we won’t see big increases either.”
Decreasing employment, incomes and home values are likely to plague consumers for much of the year, prompting a boost in savings that may limit spending. Policy makers are counting on low borrowing costs and stimulus spending to revive demand in the second half of the year and end the worst recession in at least a half century.
Stocks ended down, reversing earlier gains as Exxon Mobil Corp. drove energy companies lower and the government pushed Chrysler LLC into bankruptcy. The Standard & Poor’s 500 fell 0.1 percent to close at 872.81. Treasury securities fell, pushing the yield on the benchmark 10-year note up to 3.12 percent at 4:29 p.m. in New York from 3.11 percent late yesterday.
Contracting Less
A report from the Institute for Supply Management-Chicago showed business activity contracted this month at a slower pace than forecast, raising speculation that factories are making inroads in trimming bloated inventories. The group’s business barometer increased to 40.1, the highest level since September, from 31.4 the prior month. Readings below 50 signal a contraction.
Economists forecast spending would fall 0.1 percent, according to the median of 69 estimates in a Bloomberg News survey. Projections ranged from a decline of 0.5 percent to a 0.4 percent increase. Commerce revised the gain in February purchases up to 0.4 percent, double the prior estimate.
A report from the Labor Department showed employment expenses rose 0.3 percent in the first quarter, less than anticipated and the smallest gain since records began in 1982.
Separately, Labor reported 631,000 Americans filed applications for jobless benefits in the week that ended April 25, and the total number of people on jobless rolls rose by 133,000 the prior week to 6.27 million, the 13th straight time the figure has set a record.
‘Weak’ Job Market
“You aren’t going into a recovery with a very strong consumer,” said Roger Kubarych, chief U.S. economist at UniCredit Global Research in New York. “This is still a very soggy, weak labor market. This is why the recession is so bad.”
The spending report also showed personal incomes declined in March for the fifth time in the last six months as the labor market deteriorated.
The Commerce figures also showed inflation cooled. The price gauge tied to spending patterns rose 0.6 percent from March 2008, the smallest gain since 1961. The Federal Reserve’s preferred gauge, which excludes food and fuel costs, climbed 0.2 percent for the third month and was up 1.8 percent from the same time last year.
Adjusted for inflation, spending also dropped 0.2 percent following a 0.1 percent gain the prior month. Purchases decelerated throughout the quarter, putting the March total below the average for the period.
Saving More
The savings rate improved to 4.2 percent from 4 percent the prior month as consumers cut back. The rate had been as low as zero in April 2008.
Fed officials yesterday voted to keep the benchmark overnight lending rate between banks in a range of zero to 0.25 percent and said the pace of economic contraction “appears to be somewhat slower.”
“Household spending has shown signs of stabilizing, but remains constrained by ongoing job losses, lower housing wealth and tight credit,” the Fed’s Open Market Committee said in a statement after its two-day meeting in Washington.
Consumers are showing restraint. David Dillon, chief executive officer at Kroger Co., the largest U.S. grocery chain, said a drop in restaurant spending is boosting his company’s sales of rotisserie chickens and other deli foods to people “frightened” by the recession.
Showing Restraint
“We are seeing customers buy fewer items, which suggests that they are not buying some of the discretionary items that they might have otherwise purchased,” Dillon told analysts this week in New York. “Obviously they’re moving more to value.”
The auto industry last month recovered from the weakest sales in three decades by luring customers with bigger incentives. Still, carmakers General Motors Corp. and Chrysler LLC are fighting to survive. Chrysler today will proceed with a Chapter 11 bankruptcy filing to reorganize, an Obama administration official said.
“We did see signs of life and we think we’re going to carry a little bit of momentum into April,” Mark LaNeve, GM’s president for North America sales, said in an interview with Bloomberg Television on April 1. “Hopefully, we have bounced along and found the bottom and we’ll start firming up this industry.”
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