Consumer Spending Rises in March

Brian Hicks

Updated May 3, 2010


consumer cartoon


The markets have turned green again today as a decent consumer spending figure sent investors back into equities, shaking off the 150 point plunge on Friday.

According to the data, consumer spending in the U.S. rose in March by the most in five months, pointing to a recovery that may accelerate when the economy begins to create more jobs.

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, jumped 3.4 percent in March, the biggest gain since last August. In all, consumer spending accelerated to a 3.6 percent pace, the biggest gain in three years.

However, now that consumers are starting to open up their wallets again, you have to wonder exactly how robust the recovery will be now that consumers have walked for months on the dark side.

So whether you call it frugality or the new normal, one thing is for certain: consumers have been deeply scarred by the latest downturn.

From the Associated Press by Jeannine Aversa entitled: Frugality among consumers is outliving the recession

"Even as the economic recovery plods ahead, many American consumers are refusing to come along.

They’re not spending freely-and they have no plans to.

Many of them have steady income. They aren’t saddled by high debts. They don’t fear losing their jobs. Yet despite recent gains, they’ve lost so much household wealth that they’re far more cautious about spending than before the recession.

That’s the picture that emerges from an Associated Press survey of leading economists and interviews with more than two dozen ordinary Americans. The new AP Economy Survey asked 44 leading economists whether the recession created a "new frugality" among consumers that will outlive the recession. Two-thirds said yes.

They had in mind people like Marjorie Feldman of suburban St. Louis, who retired three years ago as a systems analyst for a utility company. The stock investments in her retirement account have sunk 15 percent from 2007. The value of her home is down 20 percent.

"I had retired assuming I’d make money" off the investments, said Feldman, who’s in her early 60’s. "I just don’t feel as confident in the economy, and I never will again. I won’t spend money the way I used to."

Scott Hoyt, senior director of consumer economics at Moody’s, notes that baby boomers, in particular, enjoyed spending sprees for most of their adult lives as their assets steadily grow.

"But the recession changed that," Hoyt said. "Many have retirement and children’s education looming. All of a sudden, they see their balance sheets decline in a way they’ve never seen before."

At their nerve-racked peak last year, Americans socked away 6.4 percent of their disposable income. That compared with less than 1 percent hit at one point during the pre-recession boom. The savings rate has since dropped to 3.1 percent. Yet few expect it to approach the near-zero savings rate that would signal high-octane spending has roared back.

"I would call it a ‘mini age of austerity,’" said Sean Snaith, an economics professor at the University of Central Florida."

Austerity seems to be a popular concept these days.

Related Articles:

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Elizabeth Warren on The Shrinking Middle Class

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