Wage growth bolsters spending as Americans extend hours

May 9 (Bloomberg) -- Consumer spending in the U.S. is rising even though hourly pay isn’t. The reason: More Americans are finding jobs and putting in longer hours in the office and on the factory floor.

Wages and salaries -- the total paycheck for all Americans -- climbed 2.2% in the 12 months through March after adjusting for inflation, according to calculations by RBS Securities Inc. economist Omair Sharif. Earnings per hour on average dropped 0.7% in real terms over the same period, according to Labor Department data.

Incomes are getting a boost from job growth and gains in hours, which will give Americans the means to increase spending at the fastest pace in six years, say Sharif and Pierpont Securities LLC economist Stephen Stanley. That’s allaying concern that hourly earnings, a widely watched measure of consumer buying power, are stagnating.

“If you were just to look at the average hourly earnings number, it would suggest pretty dire consequences for consumption,” Sharif said. “If you look at wages and salaries, consumption should be able to grow.”

Sharif predicts consumer spending, which accounts for about 70% of the economy, will rise 2.5% this year, the most since a 2.9% increase in 2006. Stanley, the most accurate forecaster of personal spending in the two years through March, according to data compiled by Bloomberg News, is even more bullish, seeing a gain of 2.5% to 3%.

Their estimates are more optimistic than the 2.1% median forecast in a Bloomberg survey of 75 economists early last month. Household spending rose 2.2% in 2011, up from 2% the year before.

Pre-Recession Average

In the five years before the last recession began in 2007, spending advanced 2.9% on average, Commerce Department data show.

Recent gains in spending have propelled stocks of companies that depend on discretionary purchases. The Consumer Discretionary Select Sector SPDR Fund, which includes Starbucks Corp. and Nike Inc., has advanced 14% this year through yesterday, compared with an 8.4% gain in the broader Standard & Poor’s 500 Index.

Macy’s Inc., the owner of its namesake and Bloomingdale’s department stores, today reported first-quarter profit that topped analysts’ estimates as sales at stores open at least a year advanced 4.4%. The Cincinnati-based retailer also boosted its same-store sales forecast to about 3.7% this year from a previous estimate of 3.5%. Shares fell after it failed to boost its yearly earnings forecast from February’s projection.

Debt Burden

Wage growth is especially important as households seek to pay down debt accumulated during the bubble years that preceded the recession, Stanley said.

“Consumer spending is going to live and die with income growth because consumers aren’t likely to take on a lot more debt,” said Stanley, who is also based in Stamford.

Americans are also unlikely to dip further into savings, said Michael Carey, the chief economist for North America at Credit Agricole CIB in New York.

The saving rate, which shows how much disposable personal income consumers choose to keep, fell to 3.8% in March from 4.7% at the end of 2011.

“I’m looking out at employment gains as the major driver of income gains that should support the consumer,” said Carey, who predicts consumer spending will advance about 2.5% this year.

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