Holiday spending wasn't as spirited as reported

January 30, 2012|Jay Hancock

This shouldn't surprise you. The holiday shopping season was not gangbusters after all.

With 13 million unemployed Americans and millions more working part-time or otherwise underemployed, the country has not returned to the mall in full force. It's not 2006 again, and it's certainly not 1999. The economic rebuilding from the 2008 financial crash is far from over.

Consumers focused as much on saving in December as on spending, a Commerce Department report released Monday showed. While the season started promisingly after Thanksgiving, Black Friday enthusiasm quickly waned, chirpy predictions notwithstanding.

Merchants had to cut prices to get people to spend. Even then, shoppers returned home with money in their pockets.

Inflation-adjusted disposable personal income soared in December by 0.4 percent, the government said. Fueled by what the Labor Department had previously reported was the addition of 200,000 jobs in December, that was the best monthly income reading since spring.

But rather than spend the money, consumers continued to rebuild their meager savings. Inflation-adjusted consumer spending fell slightly in December compared with the previous month. Meanwhile, the national savings rate, which was close to zero before the housing bubble burst, was 4 percent.

Replenishing savings and paying down debt are necessary and salutary parts of the healing process. Especially since 70 million baby boomers, not known for thrift, are facing retirement. You'd rather have boomers save like crazy for a few years than throw themselves on public support immediately upon turning 65, even if it slows economic growth in the meantime.

At the end of the year, average household debt was 106 percent of disposable income, estimates Alan Levenson, chief economist at T. Rowe Price, the Baltimore-based mutual fund company. That's still high by historical standards.

But it's the lowest in eight years. Low interest rates also mean that the carrying cost of all that debt has fallen, too, giving households a little more breathing room at the end of the month.

Savings reconstruction, however, isn't anywhere close to being finished. As long as it continues, consumer spending will edge ahead inconsistently.

For example, the first part of the fourth quarter turned out to be relatively better for retailers than December.

The year's last month is always a monster shopping period compared with its 11 peers. But when measured against expectations and "seasonal adjustments" that make every month equal in the eyes of statisticians and trend mongers, October and November were stronger, suggesting that economic growth lost momentum after Thanksgiving.

Maybe the brightest consumer light has been automobile sales. This month Polk, an auto industry research firm, reported that the average age of a U.S. car last year was almost 11 years — a record. Partly as a result, inflation-adjusted spending on cars and trucks was 17 percent higher in the fourth quarter of 2011 than in the same period of 2009, according to the Commerce Department, as drivers replaced their clunkers.

Also reflecting increased consumer confidence, Marylanders bought 287,669 new cars and trucks last year, the most since 2008, according to the Motor Vehicle Administration. December Maryland sales of 22,512 cars and trucks were the best since 2007.

But here's some perspective. Those numbers shrink in comparison to those of, say, 2005, when Maryland dealers sold 29,787 new vehicles in December and 421,834 all year.

While gross domestic product, which gauges the nation's output of goods and services, recently surpassed its pre-recession peak, other measures of the economy have not. After you subtract unemployment benefits, Social Security checks and other government payments, personal income is still far below what it was in 2007.

And the job of filling the savings crater has a long way to go. While household debt has fallen, it would still set a record high when set against 2000 or any earlier period.

Maybe overly rosy reports on holiday spending gave us the best of both worlds. For a while, we had the illusion of exuberant spending, which boosted consumer spirits. In reality we had more progress in rebuilding savings, which will power future holiday purchases.

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