Consumer Spending Spurs Forecasts for Faster Growth

In light of the latest figures, some analysts said the economy could end up growing faster in this quarter and next year than they had thought.

“I see momentum building,” said Joel Naroff, chief economist at Naroff Economic Advisors. “If Washington makes the moves it needs to make, then the economy should pick up speed next year,” he said, a reference to the bumpy negotiations between the White House and Congressional Republicans to avert tax increases and spending cuts that are to take effect on Jan. 1.

The Commerce Department reported that consumer spending, which fuels about 70 percent of the economy, rose 0.4 percent in November compared with October. Spending dipped 0.1 percent in October. But that decline was linked in part to disruptions from Hurricane Sandy.

Incomes rose 0.6 percent in November, the biggest gain in 11 months. That reflected a rebound in wages and salaries, which were depressed in October. Damage from Hurricane Sandy in the Northeast prevented some people from working at the end of October and reduced wages at an annual rate of $18 billion.

A separate report from the Commerce Department showed that a category of durable-goods orders that tracks business investment had risen 2.7 percent. That gain came after an upwardly revised 3.2 percent increase in October, the biggest in 10 months.

The back-to-back increases came after a period of weakness in so-called core capital goods that had raised concerns about business investment, a driving force in the economy.

The economy grew in the July-to-September quarter at a solid 3.1 percent annual rate. But some analysts said they thought growth would slow significantly in the October-to-December period. They predicted that consumers and businesses would cut back on spending because of worries about tax increases and spending cuts.

But after Friday’s reports, Peter Newland, an economist at Barclays Capital, said Barclays was raising its estimate of growth in the current quarter to a 2.4 percent annual rate from a previous estimate of 2.2 percent.

Mr. Naroff said fourth-quarter growth could reach a 2.6 percent annual rate. He said he expected growth to reach 3.2 percent in the first quarter of 2013 and 3.6 percent in the second quarter.

He said those estimates were based on his confidence that Washington policy makers would avert the sharp tax increases and spending cuts, which could set off a recession if they remained in place for much of 2013.

“I remain hopeful that saner heads will prevail in Washington,” Mr. Naroff said.

Economists said the budget impasse and the uncertainty it had created about tax rates were hurting consumer confidence. The University of Michigan said on Friday that its index of consumer sentiment for December fell to 72.9, its lowest point since July. It was a sharp drop from the November reading of 82.7, a five-year high.

Article source: http://www.nytimes.com/2012/12/22/business/economy/consumer-spending-spurs-forecasts-for-faster-growth.html?partner=rss&emc=rss