Consumer spending up: Are we on a rebound?

Consumer spending, the bulwark of economic growth, is showing signs of life as the economy transitions from recession to recovery.

The key question is whether the spending rebound can be sustained while U.S. households face rising employment, tight credit conditions and other obstacles.

Economists believe that consumer spending, which accounts for about 70 percent of total economic activity, surged in August, reflecting the success of the government’s Cash for Clunkers car rebate program.

While layoffs have slowed, they have not stopped, and many workers remain fearful about what the future holds. The Conference Board reported Tuesday that its widely watched barometer of consumer confidence dipped to a reading of 53.1 in September, from 54.5 in August, as Americans’ worries about job security flared again.

The Commerce Department is scheduled to report on consumer spending for August on Thursday. In advance of that report, economists surveyed by Thomson Reuters expect that spending surged 1.1 percent, up from the 0.2 percent rise in July.

Economic data, after being bleak for months following the financial collapse a year ago, has started to show encouraging signs in a number of sectors.

The Institute for Supply Management is expected to report Thursday that its gauge of manufacturing activity rose further into positive territory in September with a reading of 54. That would compare to an August reading of 52.9, which had marked the first time in 19 months that the manufacturing barometer had flashed an expansion signal. A reading below 50 indicates manufacturing is contracting.

The number of newly laid-off workers filing for unemployment benefits is expected to post a slight rise, climbing to 535,000 last week from 530,000 the previous week, according to analysts surveyed by Thomson Reuters.

In a fourth report, an index from the National Association of Realtors that tracks pending home sales is expected to rise for an eighth straight month in August. If accurate, that would provide further evidence the battered housing sector is starting to rebound following three dismal years.

However, a separate report on construction spending was expected to show a dip of 0.2 percent for August, matching the July drop, as weakness in nonresidential activity offsets a rebound in single-family homebuilding.

The big gain in consumer spending in August is expected to help lift that measure for the third quarter to an annual rate of around 2 percent. Nigel Gault, an economist at IHS Global Insight, said he expected the overall economy, as measured by the gross domestic product, to rebound to growth of between 3 and 3.5 percent in the July-September quarter.

That would be an improvement from four straight quarterly declines in GDP, including a revised decline of 0.7 percent in the April-June quarter, as the country endured the longest recession since the 1930s.

Most economists are not expecting a double-dip recession, but there is concern that their forecasts for a sustained rebound could prove too optimistic.

The Group of 20 leading industrial and emerging market countries concluded after two days of talks last week in Pittsburgh that it is critical for nations not to halt their stimulus programs too soon for fear the world could repeat mistakes made in the 1930s that prolonged the Great Depression.

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