Consumer's in the Mood for Spending

This is an article from the New York Times yesterday. Point to ponder : How are you reaching consumers? If you have'nt been advertising, now is the time ! I have ideas and proven methods. Contace me
Upbeat Signs Revive Consumers' Mood for Spending
American consumers are finally coming out of hiding.

After months of penny-pinching amid the recession, new figures -- showing an improving job market, rising factory output and increased retail sales -- suggest that consumers are no longer restricting their budgets to necessities like food and medicine. They are starting to buy clothes, jewelry and even cars again.

The mood has gone from panicked to cautious, and now, as Mark Zandi, chief economist for Moody's Economy.com put it, some consumers are "almost a bit giddy."

After the financial crisis hit in late 2008, consumers retrenched heavily. And in the months that followed, there were fears that newly frugal Americans would increase their savings so much there was no hope that consumer spending could be a factor in a recovery.

That was a troubling prospect because consumers have been the drivers of economic growth after past recessions. After all, their spending accounts for more than two-thirds of all economic activity in the United States.

But just a year later, consumers have eased off a bit on their savings, which frees up cash for them to spend. And in part because of the high rate of mortgage defaults, the overall consumer debt burden has been dropping. Those trends suggest to some economists that consumers may now be in a position to help drive the recovery.

The improved outlook has been showing up at store cash registers for several months, and the trend seems to be accelerating. Major retailing chains posted better-than-expected earnings in their most recent reporting periods and are likely to deliver more good news on Thursday, when they report their March sales results.

Total industry sales are predicted to increase up to 10 percent compared with the period a year ago, which would make March the seventh month of growth in a row, according to the International Council of Shopping Centers, an industry group. (A significant part of that increase is because of a calendar shift involving Easter.)

SpendingPulse, an information service of MasterCard Advisors, was scheduled to release figures on Wednesday showing that closely watched retailing categories -- furniture and home furnishings, clothing, electronics and luxury goods -- had healthy year-over-year sales growth last month.

And after months of cutting inventory to bring it in line with weakened demand, the nation's retailers are ordering more merchandise. The cargo volume at major ports that handle retail imports is expected to increase 8 percent in April compared with the period a year ago, according to the National Retail Federation and the consulting firm Hackett Associates.

"What I'm hearing across a wide swath of retail is that sales are simply much stronger than companies had expected," said Robert Barbera, the chief economist of ITG, an investment advisory firm.

The improvement extends even to some of the most costly household items. Last week, almost every automaker, including Ford, Toyota and General Motors, reported robust sales increases in March. Spring incentives like no-interest loans helped lure consumers into showrooms.

The Commerce Department said its broadest measure of retail sales, a figure known as personal consumption expenditures, increased 0.3 percent in February compared with January, or $34.7 billion, the fifth monthly gain in a row. And the personal savings rate -- which jumped above 5 percent during the recession -- has returned to its historical level of about 3 percent.

Lauren Keshet, the owner of Paws and Claws, a pet care company in Hoboken, N.J., said her business suffered when the economy nose-dived and consumers snapped their wallets shut. "My business went to half" of what she had been selling, Ms. Keshet said. But today, "my business is booming again," she said. "It's really come back."

So has her spending, and that of other shoppers she has seen lately at the Westfield Garden State Plaza mall in Paramus, N.J. "Right now I'm renovating my house," she said. "I'm buying furniture."

Indeed, sales of furniture and furnishings combined increased 13.8 percent year-over-year in March, according to SpendingPulse.

Perhaps the most meaningful sign of recovery is that employers added 162,000 jobs last month. With unemployment hovering at 9.7 percent, the job market is still weak by historical standards, but the rate is no longer rising.

John D. Morris, a retailing analyst with BMO Capital Markets, said that at the nation's malls, strong fashion trends like jeggings (jeans so tight they resemble leggings) are helping drive sales. He expects the new iPad from Apple will do the same.

"There's a true desire to buy that I haven't seen in two or three years," Mr. Morris said. "The consumer's gotten a little bit braver."

Economists and analysts said much of the uptick in spending was being propelled by wealthier consumers. With year-end bonuses in their pockets and healthier stock portfolios, they have slowed their savings. That has contributed to robust sales at upscale chains that were hit hard by the recession, like Nordstrom, Tiffany, Saks and Neiman Marcus. SpendingPulse said sales of luxury goods climbed 22.7 percent in March compared with a year ago, making the category one of the best performers last month.

In February, the pricey teenage clothing retailer Abercrombie & Fitch -- which had been reporting the worst monthly sales of any major national chain -- posted a 5 percent year-over-year same-store sales increase. And it is expected to post another strong figure on Thursday.

Michael McNamara, vice president for research and analysis for SpendingPulse, pointed out that the results from chain stores sound robust largely because this year's sales were being compared with the depths of the recession. So the big gains really represent a return to normal patterns.

"It's more about how little people were buying a year ago than how much people are buying today," he said.

Indeed, retail sales are still below the highs they hit in 2006 and 2007.

A lingering fear is that the sales gains could turn out to be temporary. Mr. Zandi of Moody's said that once wealthier consumers satisfied their pent-up demand, they might become cautious again. And other economists fear that the strengthening retail figures are not necessarily a good sign.

"The more money the consumer spends, the worse shape our economy is going to be in," said Peter D. Schiff, president of Euro Pacific Capital, "because we are spending borrowed money."

Paul Laudicina, chairman of A. T. Kearney, the management consulting company, said that while some people were feeling confident enough to spend, he predicted a continuing degree of caution among consumers.

"We shouldn't free the balloons," he said, "because this is going to continue to be a slow, long, steady climb."

(Source: The New York Times, 04/07/10)