October 17, 2012
Just when the economy could use an extra lift, Americans seem poised to provide it. They are in the mood to do a little shopping.
Calling it a "shopping spree" would be going too far. But with the holiday season drawing near, and the global economy stuck in Europe's debt muck, U.S. consumers are in brighter spirits than they've been in since pre-recession days in 2007.
Retail sales were up 1.1 percent in September, with gains across the board — from electronics to groceries, sporting goods, building materials, furniture and restaurants. In other words, there is evidence that people are willing to part with their money in a variety of ways, although the strongest gains involved iPhones, as electronics stores posted a 4.5 percent surge.
The numbers released this week by the federal government are what economists hoped to see when the University of Michigan consumer confidence survey showed last week that Americans were growing more cheerful about the economy than they've been for years. Now, the retail numbers look like people aren't just talking about optimism, but are willing to walk the talk right up to the cash register.
"The improvement is important, as it fits well with other signs of better economic activity — including the recent drop in the unemployment rate," said Veneta Dimitrova, a Ned Davis Research economist.
Sometimes people behave differently than consumer confidence surveys might indicate. This time, however, retail numbers are providing supporting evidence that people might be willing to do their bit for the economy well into the critical holiday shopping period. That's significant now because 70 percent of the U.S. economy depends on consumers, and the International Monetary Fund warned last week that recession in parts of Europe, lackluster growth in the U.S. and a dramatic slowdown of the economy in China could send the global economy back into recession.
Expectations for the months ahead remain modest, with retail sales expected to climb 2 to 3 percent. But the consumer is a much welcomed force at a time when China can no longer be relied upon to power growth and when manufacturing is showing strain.
Still, while the trend seems encouraging, Americans remain bogged down by debt and job loss. Despite retail gains, this is not a return to the "shop till you drop era" that preceded the U.S. housing crash and financial crisis.
"People are still trying to climb out of the ditch," said Chris G. Christopher, an economist for IHS Global Insight. "People can't afford to spend as much as previously and aren't as willing to spend as much."
Each American is spending about 2.2 percent less now on average than people were spending per capita in December 2006, or months before the economy started to tank, according to James Marple, economist for TD Economics. His numbers are adjusted for inflation.
During the recession, "spending fell off a cliff," Marple said. Retail sales per capita plunged 13 percent. And despite the fact that retail sales have grown year after year since then, he said, growth has not been strong enough for Americans to return to the spending of the past.
It's a result of home values plunging, massive debt, unemployment, anemic income growth and savings earning almost no interest, he said.
"The economic recovery is very slow compared to the past," Marple noted. Until employment improves and people pay off more of their debts, "we are a few years away from normal spending."
With wage growth stagnant, Gluskin Sheff economist David Rosenberg says it's difficult on the face of it to understand how recent retail sales have been as strong as this week's numbers suggest. But there has been a refinancing boom among homeowners with equity in their homes, and that has freed up spending money.
It's not like the mid-2000s, when homes were piggy banks that allowed Americans to shop while saving nothing. But, Rosenberg says, "it is quite clear that the household cash flow being generated by the dramatic surge in mortgage refinancing activity is giving a boost to consumer spending."
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