Rosalind Wells, chief economist at the National Retail Federation, has been among the keenest observers of Americans’ spending patterns for more than 30 years.
Nothing in her long career watching US consumers, she said, compared with the impact of the last recession. “Consumers were in hibernation,” said Ms Wells. “People were really scared. Even those who had jobs and income were worried.”
But Ms Wells, a former chief economist at JC Penney, a near-ubiquitous presence in US shopping malls, said there were signs Americans were finally buying goods and services again. “They are coming back to life a little.”
Her cautious optimism is supported by recent government data, which suggest that consumer spending could grow at a rate of 3 per cent or more in the first quarter. That would mark a big jump compared with the 1.6 per cent rise in consumer spending during the fourth quarter of 2009, and the measure’s best performance since the start of 2007.
Reports by corporate America are also comforting. At Home Depot, the largest US home improvement retailer, customers are again buying kitchen counter tops and bathroom cabinets. At Kroger, the supermarket chain, shoppers are putting bunches of cut flowers in their baskets, and selecting better wines. Red Lobster, the casual dining restaurant chain, has reported its first positive sales growth for two years. Starbucks and Whole Foods Market, both popular with middle-class shoppers, have seen their sales begin to increase again. “It’s a direct result of people feeling they can spend some discretionary money,” said David Dillon, Kroger’s chief executive, this week.
Renewed strength among consumers would provide a big boost to the US economic recovery, which has to date been led by higher business spending and by slower inventory depletion. More evidence of the strength or weakness of the recovery is due on Friday when the US publishes non-farm payrolls data.
Many economists think any consumer spending upswing remains limited. Persistently high unemployment, now at 9.7 per cent, as well as high debt of many US households, and housing market woes, are seen as structural barriers to spending that would be hard to break down. A fresh concern is gasoline prices – rising by some 15 per cent, to $2.82 per gallon, during the past six months.
To drive the recovery, US consumer spending would have to increase to at least 4 per cent this year. Most economists believe that after the first quarter consumer spending could weaken slightly to rates closer to 2 per cent. “I don’t think we should expect the consumer to be a leader at any stage in the recovery,” said Nigel Gault, chief US economist at IHS Global Insight.
Chris Donnelly, retail consultant at Accenture, said: “The good news is it’s not getting worse and it has stabilised. But you still have so many economic issues ... weighing on US consumers. I think you will see a prolonged period of slow growth. It’s better than uncertainty and decline – but it’s not robust growth.”
Some see reasons to be optimistic. This year’s surge in US equity prices has opened wallets of more affluent consumers, boosting sales of luxury goods.
Joe Lavorgna, chief US economist at Deutsche Bank, said the recent consumer spending increase occurred even without much activity in “durable goods” such as cars, appliances, furniture and electronics. He argued there is a lot of “pent-up demand” for these which may support retail sales later.
Low interest rates are a third factor. Americans’ bank accounts generate very little income, offering scant incentives to save.
