“The situation for consumers has improved significantly over the last several months,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York. “Spending is bound to accelerate, the most important driver being improvement in the labor market.”

Employers boosted payrolls in February, capping the best six-month streak of job growth since 2006, Labor Department data showed last week. Consumer spending on utilities will probably return to normal after dropping from November through January because of unseasonably warm weather.

“Given the labor market and some of these weather factors, there is reason to be optimistic,” said Troy Davig, a senior economist at Barclays Capital Inc. in New York. “The warm weather has held down consumer spending, basically because of the direct impact of households purchasing less energy to heat their homes. That’s generally positive for the consumer, but the immediate impact has depressed consumption.”

Analysts at Barclays Capital, led by chief U.S. economist Dean Maki, a former researcher at the Federal Reserve who specialized in consumer spending, project consumer spending will climb at a 3 percent annual rate in the second half of the year after expanding at a 2.5 percent pace in the first six months.

Retailer Shares

Investors have driven up retailers’ shares as the job market heals. The Standard & Poor’s Supercomposite Retailing Index (S15RETL), which includes Gap and Macy’s Inc., has climbed 14 percent this year through March 9, compared with a 9 percent advance for the broader S&P 500. The S&P 500 fell 0.1 percent to 1,369.89 at 12:19 p.m. in New York as signs of a slowdown in China led to a drop in commodity prices.

China’s economic growth slowed in the first two months of the year, with both exports and domestic demand moderating. The world’s second-largest economy last month had the biggest trade deficit in at least 22 years, January-February factory output rose by the least since 2009 and retail sales climbed at a slower pace than the median estimate of economists surveyed by Bloomberg News, government data showed March 9 and 10.

Household purchases in the U.S. were little changed for a third month in January after adjusting for inflation, Commerce Department figures showed on March 1. Part of reason was that spending on housing and utilities dropped by $20.7 billion at an annual rate over the period, wiping out a $21.4 billion increase in sales of automobiles and parts.

Above-Average Temperatures

Temperatures in December, January and February averaged 36.8 degrees Fahrenheit (2.7 degrees Celsius), 3.9 degrees above the average in the 20th century, representing the fourth-warmest winter on record for the 48 contiguous U.S. states, according to the National Climatic Data Center in Asheville, North Carolina.

The windfall from lower energy bills, combined with revised income data showing worker pay jumped in the last six months of 2011 by the most in almost five years, has helped households squirrel away some extra cash. Americans saved 4.5 percent of their after-tax income in the fourth quarter, up from a prior estimate of 3.7 percent, according to Commerce Department data.

Less spending on heating and a higher savings rate will help mitigate the effects of gasoline prices, said Bandholz. The average cost of the fuel rose to $3.77 a gallon last week, a nine-month high.

Bernanke’s View

The rise in gasoline prices “is likely to push up inflation temporarily while reducing consumers’ purchasing power,” Fed Chairman Ben S. Bernanke to U.S. lawmakers earlier this month in his semiannual monetary policy report to Congress. He told lawmakers that maintaining monetary stimulus was warranted even with employment gains and a lower jobless rate. Policy makers, meeting tomorrow, may reiterate a plan to keep interest rates low at least through late 2014.

A pickup in consumer demand probably began last month. Retail sales in February rose 1.1 percent, the biggest gain in five months, economists surveyed by Bloomberg News forecast the Commerce Department will report tomorrow.

A jump in auto sales probably paced the gain. Purchases of cars and light trucks climbed to a 15 million annual rate last month, the most since February 2008, according to figures from Ward’s Automotive Group.

The latest survey on economy-wide outlays on services also indicates household purchases ended 2011 on a stronger note than currently estimated, according to economists at JPMorgan Chase & Co. in New York. The data point to a 15 percent increase in health-care spending in the fourth quarter before adjusting for inflation, compared with a current estimate of 2.6 percent.

Growth Revision

The results, used by the Commerce Department to revise growth estimates again later this month, may add another 0.5 percentage point to gross domestic product, according to calculations by JPMorgan Chase. The economy grew at a 3 percent annual rate from October through December, while consumer spending climbed 2.1 percent, according to the most recent government calculations.

The rebound in consumer spending will probably not show up until the second quarter, according to Michael Feroli, chief U.S. economist at JPMorgan Chase, as the increase in fuel costs restrains demand in the first three months of the year.

“We are looking for a pretty noticeable acceleration,” Feroli said in an interview. “We anticipate that energy prices will stop rising. That has been a drag in the first quarter. That does free up a decent amount of purchasing power, given that the job market is coming along.”

Spending Estimate

Economists at JPMorgan Chase project consumer spending will increase at a 0.8 percent annual rate in the first quarter and climb at a 2.8 percent pace in the following three months. It will average about 2.5 percent in the second half of the year.

Bank of America Corp. Chief Executive Officer Brian T. Moynihan said last week he sees signs of a rebound in consumer spending that will help improve earnings at the second-biggest U.S. lender.

Purchases by the bank’s credit and debit-card customers have increased 5 percent to 7 percent for each of the past five months, Moynihan said in an interview aired by Bloomberg Television on March 9.

“The American consumer is healing,” Moynihan said in New York. “There’s still an unemployment problem, we all have to work to solve that. But this economy is much better than it was six months ago or six months before that. It just keeps feeling better.”

The economy generated 227,000 jobs in February following a revised 284,000 gain in January that was bigger than first estimated, Labor Department figures showed March 9. Joblessness (USURTOT) held at 8.3 percent for a second month, its lowest level in three years.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net

http://www.bloomberg.com/news/2012-03-12/outlook-for-u-s-consumer-spending-brightens-on-employment-gains-economy.html

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