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In boost for economy, consumer spending and confidence post gains

The momentum doesn't mean the economy is running full steam ahead. But the recent reports, including on consumer spending, suggest that the economic recovery may be gaining traction.

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In this Dec. 18 photo, shoppers are shown on 34th Street, in New York. American consumers are spending more, becoming more confident, and are less likely to be losing their jobs.

Mary Altaffer/AP

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American consumers are spending more, becoming more confident, and are less likely to be losing their jobs.

That's the message from economic reports released by the government and private-sector tracking firms Thursday, adding a welcome dose of economic cheer just ahead of the Christmas holiday.

• Spending by consumers rose in November by 0.3 percent (adjusted for inflation), marking the fifth straight month-over-month gain of at least $30 billion in spending. Disposable incomes rose by 0.2 percent, the Commerce Department reported.

• New claims for unemployment insurance fell by 3,000 for the week that ended Dec. 18, the Labor Department said.

• A gauge of economic confidence, the Reuters/University of Michigan Consumer Sentiment Index, edged up 2.9 points in December to its highest level since June.

"The recent evidence is pointing to some momentum building in consumer spending and sentiment," Chris Christopher, an economist at IHS Global Insight, said in a report to clients. "Optimism is being driven by good news on the employment front, a strong stock market,... and easing of credit conditions."

Consumer spending in the third quarter rose 2.4 percent, the strongest annualized pace since late 2006, Mr. Christopher says. Spending appears likely to notch a 4.2 percent annualized growth rate in the fourth quarter, he says.

But the gathering consumer momentum doesn't mean the economy is running full steam ahead.

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With unemployment still near 10 percent, there are plenty of people who haven't gone on December shopping sprees.

And by some measures, personal incomes haven't been growing very perceptibly since the recession's official end in June 2009. Since then, disposable income per capita has actually fallen slightly. The sum of all wages paid by private industry has risen a bit.

Many consumers also worry about the still-troubled housing market and about gasoline prices, which rose this week to a national average of $3 per gallon, according to a AAA survey.

The current level of the Reuters/University of Michigan sentiment index, at 74.5, is still weak compared with pre-recession norms.

Still, the recent economic indicators suggest that the forces of economic recovery may be gaining traction. As consumers gain confidence to spend, the pace of employer hiring should improve. Gains in consumer spending typically account for most growth in the broader economy.


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