Consumers Spend More For First Time Since May
Thursday, December 25, 2008
Consumers increased their spending last month for the first time since spring, as falling gas prices helped boost their purchasing power, new data showed yesterday.
On an inflation-adjusted basis, consumers spent 0.6 percent more in November than they did the month before, the Commerce Department reported, the first increase since May. Disposable income also rose on an inflation-adjusted basis, by 1 percent, compared with an increase of 0.7 percent in October.
But even as consumers returned to stores and shopping malls, analysts cautioned that the data did not signal the start of a turnaround for the economy. Because energy prices are unlikely to sink at the same clip they have over the past few months, Americans won't be able to pocket much more savings at the pump.
"Much of the declines are behind us and won't be a significant event as we go into 2009," said Sung Won Sohn, an economist at California State University, Channel Islands.
Consumer spending drives 70 percent of U.S. economic activity, and last month's data were slightly better than expected. That suggests that retailers, offering deep discounts in an effort to salvage the holiday shopping season, may have had some success in reeling in customers.
Consumers kept their eye on their bottom line, however, hitting discount retailers and avoiding big-ticket items such as refrigerators, washing machines and automobiles. In November, new orders for durable goods -- which offer clues about how the economy is likely to perform in the near future -- were down 1 percent, to $186.9 billion, according to U.S. Census Bureau data issued yesterday.
Excluding defense-related spending, new orders were down 0.9 percent. While that's an improvement over October's 8.4 decline, Wachovia economist Sam Bullard said it doesn't make the overall picture any brighter.
"The fundamentals for the domestic and the international economy are still pretty dim," Bullard said. "We're seeing nothing in the economy right now that is going to change that trend."
Many consumer share that pessimism and chose to save more last month. Personal savings as a percentage of disposable income rose to 2.8 percent, up from 2.4 percent in October. Analysts said that was understandable given the relentless stream of bad economic news, including mounting unemployment.
"People are nervous their job could be at risk," said Ed Hyland, global investment strategist for J.P. Morgan Private Bank in New York.
In recent weeks, employers across a broad swath of industries have announced job cuts. In November, Fidelity Investments in Boston let go 1,300 people and said it plans to lay off 1,700 more early next year. Toymaker Mattel said it would cut 1,000. General Motors said it would cut 5,500 jobs.
Last week, the number of people filing for unemployment benefits for the first time surged by 30,000, a higher-than-expected amount, to reach 586,000, a level not seen since 1982. The four-week moving average, a more reliable indicator of unemployment claims, rose to 558,000 from 544,250, also a 26-year high.