Consumers show renewed strength on positive retail, housing data

By Ylan Q. Mui
Washington Post Staff Writer
Friday, December 3, 2010; 1:59 AM

After two years on the sidelines, American consumers are spending again and raising hopes that they are ready to shoulder the burden of the nation's economic recovery.

Consumers' growing strength was evident in data released in recent days across a wide array of sectors: Pending home sales shot up a surprising 10 percent, according to an industry group, a record increase. Sales at the Big Three automakers have increased by double-digit percentages. And many of the nation's largest retailers reported better-than-expected sales from door-buster deals and midnight openings last month, with Cyber Monday alone raking in a historic $1 billion.

"The American consumer is off the mat," said Craig R. Johnson, president of the consulting firm Customer Growth Partners. "This is not a one-time flash in the pan. All the signals are all moving in the correct direction."

There is still a long march to return to pre-recession conditions, however. The stagnant job market remains one of the principal drags on the economy. The monthly unemployment rate is slated for release Friday and is expected by economists to remain unchanged at 9.6 percent.

During the Great Recession, a wave of job losses combined with sinking home prices and a volatile stock market battered consumers, the driving force of the nation's economic growth. Spending on everything from fast food to designer clothes slumped. Since then, consumers have trodden warily, slowing the pace of recovery.

But signs of a turnaround are emerging. The jump in pending home sales in October offered hope that the housing market is on the mend, even if those sales are at a significantly lower level overall from the boom years. The National Association of Realtors said Thursday that its index of pending home sales, which reflects the number of signed contracts to buy existing houses, rose 10.4 percent in October to 89.3. The index peaked in May 2006 at 112.6.

"The housing market clearly is in a recovery phase and will be uneven at times, but the improving job market and consequential boost to household formation will help the recovery process going into 2011," said Lawrence Yun, the association's chief economist.

Meanwhile, major stock indexes have largely recouped their losses from the financial crisis and are up more than 60 percent from their lows in the spring of 2009. On Thursday, investors cheered several positive economic reports, sending the Dow Jones industrial average up nearly 1 percent a day after a 2.3 percent gain.

The wave of positive economic news has helped boost consumer sentiment. A monthly survey by Reuters and the University of Michigan came in more cheerful than expected, rising to the highest level since June.

Improvement in consumer sentiment typically translates into gains in actual spending. Almost all of the roughly 30 retail chains that reported monthly sales at established stores Thursday experienced a solid boost in November. Target posted a 5.5 percent jump in sales compared with a year ago, when they dropped 1.5 percent. Macy's said sales shot up 6.1 percent, with 4.5 million visits to its Web site on Black Friday.

The returns are "bolstering our confidence," Macy's chief executive Terry J. Lundgren said in a statement.

According to an analysis by the International Council of Shopping Centers, a trade group, monthly sales for all the reporting chains rose 5.8 percent, the biggest increase in eight months. Retailers reported heavier traffic in stores and online as they began touting holiday sales just before Halloween. The council said last month's results were so encouraging that it is considering raising its annual forecast of holiday sales as much as a percentage point.

Michael McNamara, vice president of research and analysis for MasterCard Advisors SpendingPulse, which tracks consumer spending, said he was also encouraged by the types of retail that have seen improvement. Sales of women's clothing, hit particularly hard during the recession, rose 3.9 percent in November, according to his data. That suggests women feel confident enough in the future to spend on themselves again, McNamara said.

In addition, he said, shoppers previously split their dollars between buying new goods and purchasing services, such as hotel rooms and airline tickets. But now both sectors are reporting stronger sales instead of seesawing.

"There's somewhat more durability to this wave than where we were before," McNamara said.

Leading the way in consumer spending has been auto sales, demonstrating that Americans are more willing to open their wallets and borrow money to buy big-ticket items. General Motors, Chrysler and Ford enjoyed double-digit percentage gains in sales last month, on top of a strong October.

Economists cautioned, however, that Americans should not expect to rewind to 2007. But speculation of a double-dip recession - widespread just a few months ago - has largely died down amid the stream of positive data.

"You put it all together and I think it tells a story of an economy that is shaking off the doldrums," said Stuart Hoffman, chief economist for PNC Financial Services. "It's broad-based enough and the trends are there to suggest that this isn't a false start."

Instead, he said, he prefers to see the glass as half-full - and filling up.

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