Risks of US retail spending boom
Near-record consumer confidence could force early slowdown in the
Rich and Cindy Lewis had spent so much money to launch their home-renovation business, there wasn't a lot left over for anything else.
But when the opportunity came to buy a $6,000 motorcycle two months ago, they splurged. "We finally decided to do something recreation-wise," Mr. Lewis says.
That's the way it's going in America's all-pistons-firing economy.
Plentiful jobs and low inflation are pushing consumer confidence close to the record levels set in the 1960s.
Much of it is being driven by the best economic conditions in US peacetime history. But there are other factors at work as well. Baby boomers, entering the time of life when they earn the most, have accelerated their spending - and are exhibiting subtle differences in buying patterns than previous generations.
Behind all this, however, lurks a danger: Will consumer spending - a prime reason for the boom times of the 1990s - force higher interest rates and shut down the economy?
"Some way or another the economy is going to slow," says Ezra Greenberg, a senior economist with Standard & Poor's DRI, an economic research firm in Lexington, Mass. Either consumers take a break from the checkout counter or the Federal Reserve forces them to do so by raising interest rates beyond last week's 0.25-point hike. But "we don't see some shock coming along which is going to cause some dramatic pullback."
So far, there's little evidence of a slowing. Last week, the nation's largest retailers reported surprisingly strong sales for June. According to the Merrill Lynch retail index, department stores and discount chains saw sales rise 6.3 percent last month, higher than the 5.4 percent hike in May.