Business

Are Americans Spending Money Again?

Analysts debate whether this year's strong holiday sales are a sign of renewed consumer confidence or an aberration

By Uri Friedman
This article is from the archive of our partner .

This year, Americans ramped up their holiday shopping--particularly on clothing and jewelry--to a degree not seen since before the recession. Consumer spending rose by 5.5 percent relative to last year--more than many analysts expected--while online sales increased by 15 percent, according to MasterCard SpendingPulse, which tracks all retail sales except automobiles from early November through Christmas Eve. Not all sectors performed well; electronics, for example, experienced only modest gains as new technologies like 3D sets flopped and a television surplus caused TV prices to decline.

Do the rosy sales figures indicate that consumers are emerging from the wreckage of the Great Recession, wallets extended? Or--like ugly Christmas sweaters and Charles Dickens references--will higher rates of consumer spending prove as fleeting as the holiday season? 

  • The American Consumer Is Back, argues Craig R. Johnson, the president of the consulting firm Customer Growth Partners, as quoted in The New York Times: "In the face of 10 percent unemployment and persistent housing woes, the American consumer has single-handedly picked himself off the mat, brushed his troubles off and strapped the U.S. economy on his back."
  • Consumers Are at Least Rebounding From the Recession, notes Mercedes Cardona at Daily Finance: "While the [SpendingPulse] totals don't bring numbers back to prerecession levels, it shows a marked improvement over the past couple of years, especially the spending on nonessentials. Retail still needs employment to improve to show some real growth, but the industry appears to have hit bottom and resumed growth."
  • And the Consumer Will Drive the Economy in 2011, states Bob Johnson, Morningstar's director of economic analysis. He expects consumers to be more resilient in part because many can no longer delay the non-critical spending they deferred during the recession, like elective surgeries or auto repair.
  • This Is Mostly Good News for E-Commerce, adds Frank Reed at Marketing Pilgrim. Online sales are consistently growing over the holidays and wresting market share from in-store sales, he says, and the trend will likely continue as people take advantage of the deals and convenience e-commerce offers. But there could be trouble on the horizon: cash-strapped state and local governments may try to raise money in 2011 by hiking taxes on online sales, Reed warns.
  • But How Long Will Renewed Confidence Last? ask Ann Zimmerman, Justin Lahart, and Rachel Dodes at The Wall Street Journal. Consumer moods in December are at their highest level since June, and Americans may be inclined to spend more as the job and stock markets recover and the two-percent reduction in payroll taxes takes effect in January, they explain. But consumer spending could suffer a setback in the coming months if gasoline prices continue to rise, state and local governments lay off more workers than expected, or another spate of foreclosures keeps banks from lending.
  • The Confidence Is Temporary, declares Phil Wahba and Dhanya Skariachan at Reuters: Consumers "still confront bleak job prospects and still are trying to pay down their hefty debt loads. That sets the stage for a 'spending diet' come January, which could weigh on U.S. economic growth, since consumer spending accounts for 70 percent of the U.S. economy." He continues:

The strong start to the holiday season in late November reflected pent-up demand after two weak Christmas seasons, plus attractive deals designed to lure shoppers. It did not signal a return to frenzied spending, analysts and shoppers said...

The result is likely to be pronounced lulls between the two major shopping seasons--back-to-school in late summer and the five weeks leading up to Christmas.

This article is from the archive of our partner The Wire.