The pieces just don’t add up.
Credit card debt outstanding has fallen 27 straight months for a total decline of $177.2 billion.
The unemployment rate has been stuck above 9 percent for 20 months.
Average hourly earnings rose 1.9 percent in 2010.
Personal income rose less than 4 percent in the 12 months ended November.
About 23 percent of homes with mortgages are worth less than the amount of the loan.
Faced with these not insignificant hurdles, what did the U.S. consumer do? Why, he spent like there was no tomorrow.
Retail sales jumped an annualized 14 percent in the fourth quarter, a spending pace that’s been equaled only once in the last 18 years. (The Census Bureau changed the methodology for calculating retail sales in 1992 and says the data aren’t comparable to earlier measures.) For the year, retail sales rose 7.9 percent, matching the 2004 increase and the biggest since 1999.
With inflation low, the gains in nominal retail sales should translate to a 3.9 percent increase in real consumer spending in the fourth quarter, according to the median forecast of a Bloomberg News survey of 62 economists.
Is the American consumer back to his old shop-’til-he-drops ways? It sure looks that way on the surface.
And who can blame him? All the incentives are urging him to spend, spend, spend. The interest earned on checking and savings accounts is so minute it’s hard to find on the monthly bank statement. Economic theory teaches that high real interest rates are an inducement to defer consumption. Low real rates encourage consumers to spend today.
Opinion piece on Bloomberg
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