By Ylan Q. Mui
Washington Post Staff Writer
Friday, December 24, 2010; A07
Consumers are on track for a merry Christmas, but it remains unclear how long that holiday spirit will linger.
Government data released Thursday showed that consumer spending rose 0.3 percent on an inflation-adjusted basis in November from October, the seventh consecutive monthly gain. That was driven by a 0.5 percent jump in spending on nondurable goods, such as clothing, and a 0.3 percent increase in services, according to a Commerce Department report.
But the report also showed that personal incomes rose last month at the same rate as spending. In previous months, as shoppers began to shake off their recessionary stupor, spending growth had outpaced increases in income.
Wells Fargo senior economist Mark Vitner said the result will probably be the strongest holiday season in five years but a weaker start to 2011 as consumers simply run out of cash.
"It's not sustainable," Vitner said. "We think consumer spending is going to slow."
Investors largely shrugged off the consumer data amid a quiet day of trading on Thursday. The major indexes ended the day virtually flat. The blue-chip Dow Jones industrial average edged up 0.1 percent, or 14 points, to 11,573.49, while the broader Standard & Poor's 500-stock index dipped 0.2 percent, or 2 points.
Retailers have been working round-the-clock - at times literally - to ring up sales. Toys "R" Us, Macy's and Old Navy all planned to keep their doors open 24 hours a day through Christmas Eve to snag last-minute shoppers.
Toys R Us even held several "Midnight Madness" sales this week to recreate the excitement of the traditional post-Thanksgiving doorbusters. On Christmas Eve, many stores will be open until 10 p.m. - an hour later than last year.
"You're really busy the first half of the day, and the people in your store those last three or four hours are those who procrastinated," Dan Butler, vice president at the National Retail Federation, a trade group, said of last-minute shoppers. "You could almost see the panicked look on their faces."
Consumers have been on an unexpected spending spree since late summer, when retailers reported back-to-school results that exceeded expectations. The momentum continued through Thanksgiving weekend, when several stores reported record sales days.
Early December data indicate that the torrid sales pace has not abated. ShopperTrak, which analyzes mall traffic, found that this year's sales on the final Saturday before Christmas - traditionally one of the biggest shopping days of the year - jumped 5.5 percent compared with last year. Online sales soared 17 percent over the past weekend to $900 million, according to research firm ComScore.
So far this week, shoppers have reported a spike in their average daily spending. A Gallup poll showed consumers spent $99 a day this week compared to $77 a day last week. With Christmas falling on Saturday this year, many shoppers may find that the holiday has snuck up on them.
"Recognition that time is running out could create a somewhat greater-than-usual last-minute rush of Christmas spending," Gallup said in a statement.
Consumers also are growing increasingly confident about the state of the economy, which could encourage them to keep their wallets open. A monthly index of consumer sentiment released Thursday by Reuters and the University of Michigan rose 2.9 points, to 74.5, the highest level since June. The index showed consumers not only felt better about their current situations but also the outlook for the future.
To fund their shopping spree, consumers have reduced their savings rate. The government data released Thursday showed that the savings rate dipped to 5.3 percent of disposable income in November. That is significantly lower than the recent peak of 8.2 percent in May 2009, and another sign of consumers' growing confidence.
But it is unlikely that shoppers will let their savings dwindle to the negative rates seen during the boom years. Consumers also are still paying down debt and avoiding credit cards, with the number of shoppers who plan to charge their holiday purchases at the lowest level since 2002, according to the NRF.
That means there is little fuel to continue to drive spending once the catalyst of Christmas has ended unless the job market recovers. PNC senior economist Robert Dye said he expects the economy to add about 150,000 jobs this month and the unemployment rate to inch downward to 9.7 percent.
"We need to see the support from job growth now," Dye said. "Consumers are a little ahead of themselves."