U.S. Economy: Ending 2013 With Good Momentum
For the month of December, Americans reported spending the most since December 2008. According to Gallup’s monthly poll, self-reported spending jumped to $96 per day last month, the highest monthly average since September 2008, when the depth of the recession and economic crisis started to be felt across the country. While it must be remembered that the month of December typically sees the highest spending of any month because of holiday purchases, the trend in consumer spending is strengthening, and that trend is expected to continue into the new year.
This conclusion is supported by more than attitudinal data; 2013 saw the greatest gain in employment in eight years and the recovering housing and stock market strengthen household finances, which will enabled many Americans to increase personal expenditures in the new year. Plus, companies like Apple (NASDAQ:AAPL) and Ford (NYSE:F) have announced plans to expand their operations in the United States, a move that will further boost the country’s economy.
As ever, consumer spending levels remain all-important to economists; since the end of the recession in June 2009, the underlying question of many economic analyses was when would consumer spending return to so-called normal levels. Many American consumers continued to be in a difficult financial position and, because American consumers have been in a difficult position, so has the economy — consumer spending accounts for approximately 70 percent of gross domestic product. Since government and business spending have largely remained weak, the economy has depended even more on household spending to fuel growth. Yet, the United States is “ending 2013 with good momentum,” as Pierpont Securities chief economist Stephen Stanley told Bloomberg. “We’ve seen progress in the labor market. The rise in home values along with the run-up in equity prices is a big element of why people are feeling better” about their economic futures. In fact, consumer sentiment posted the strongest year-end reading since 2007.
Americans reported spending $96 per day in December, excluding household bills and major purchases like a car or home. That was a five-dollar jump from November’s spending figure. In 2008 — the first year in which Gallup conducted this survey — each monthly reading exceeded $80 and during four months spending jumped above $100. Then, between 2009 and November 2012, the month averages were consistently below $80. That period became known as the “new normal” in spending, and it was linked to the sluggish economy and high unemployment rate.
From late 2012 through August, Gallup’s consumer spending data had been generally been trending upward, a sign that consumers were moving beyond the “new normal” period of more limited spending. While in September, momentum was lost, largely due to the looming possibility of a government shutdown, spending picked up once again in October and continued to rise in November. Trends in consumer spending are usually skewed in November, because, in the days after Thanksgiving, the holiday shopping season begins. But, nonetheless, the data for the month told a story of its own about consumer confidence and their willingness to spend.
“The trend in consumer spending over the past six years presents a clear pattern. Spending was at its highest point in the first three quarters of 2008, including the monthly high to date of $114 measured in May,” wrote Gallup’s Frank Newport. “Then came the economic collapse. Spending dropped to its nadir of $58 by January 2011. Since then, it has gradually increased, and spending last year clearly was the most robust since 2008.”
Still, continued spending growth is not a certainty, cautioned Newport. While consumer sentiment soared to a reading of plus 78.1 from 72 in November and American’s confidence in the economy is slowly growing, additional attitudinal data suggests that many Americans prefer to save rather spend. A recent Gallup poll found that, “Since the 2008 financial crisis, the majority of Americans have said they prefer saving money to spending it,” and that remains especially true among those with the absolute lowest annual household incomes. Even though a desire to save does not always translate to an ability to save, many respondents to the survey said that spending less is their “new normal.” Plus, the research firm’s measure of job creation dipped slightly in December, a drop that suggested there are a few more hurdles left in the economy recovery.
Manufacturing, which makes up 12 percent of the economy, has been expanding as demand for appliances, automobiles, and construction materials grow. In addition, improving sales have prompted factories to increase their output, giving the economy further strength. While the MNI Chicago Report business barometer fell to 59.1 in December from November’s reading of 63, over the past three months the index has made the strongest gains in more than two years, providing hope that the manufacturing sector will continue to grow in 2014. “Some of the missing pieces for a stronger economic recovery are falling into place,” Moody’s Analytics senior economics Ryan Sweet told Bloomberg. But “he consumer’s still going to have to do some of the heavy lifting, particularly early on in the year until the housing cycle kicks in and business investment ramps up.”
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