Consumer Spending

Recessions are not inevitable adjustments built into the clockwork of a modern economy. Businesses no longer make products on long lead times and stumble into excess inventories of cars and appliances, triggering layoffs and pauses in consumer spending. Computer-aided supply-chain management and tracking of customer purchases allow businesses to better align what they make to what can be sold. However, recessions still happen, because of external shocks - natural disasters and political events - as well as errors of judgment and greed.

The nation's economy shook off its recent torpor to grow at a solid 3.4 percent annual pace in the second quarter, the government reported yesterday, as improving business investment and higher exports worked to offset a sharp slowdown in consumer spending. The Commerce Department's report on gross domestic product modestly topped the 3.2 percent most economists had been expecting, and it was also the best performance since the first quarter of 2006, when the economy was riding the final months of the boom in the housing industry.

NEW YORK -- Gas prices might be up. The stock market might be down. Job security might seem an illusion and there's not an iPod in every pocket. But according to the government, American families have never earned more income, spent less on necessities or enjoyed a higher standard of living than they do right now. That information comes from a new longitudinal study by the U.S. Bureau of Labor Statistics, which, for the first time, examines a century instead...

While perusing shirts at The Gap in the Inner Harbor yesterday, Jener Crisolo, a nurse, dismissed larger concerns about the economy. People need new "gear," especially in the summer, he reasoned. "You have to buy something," he said. "I think others have slowed down because of the [economic] situation, but for me, I buy what I want," said Crisolo, 35, of Baltimore. Today, Federal Reserve officials, who set interest rate policy, corporate planners who assemble billion-dollar budgets and other economists will be trying to glean whether in the near-term consumers like Crisolo represent the exception or the rule.

Formerly pessimistic experts are already bumping up estimates for holiday spending. The usual explanations are dragged out. Consumers are blowing the proceeds of loans secured by greatly appreciated McMansions and townhouses goes one answer. Lower energy prices freed up cash for the malls. Americans are just naturally profligate; go figure! But there is another, powerful force affecting what's going on, and it almost never gets discussed as a consumer-spending factor. The continuing wealth transfer from Depression-era savers to their baby boomer children may be supplying "dark energy" to the economy, an X-factor that helps explain short-term and long-term consumer resilience.

Expectations for the holiday shopping season seem to be on the rebound. As the $4 trillion retail industry enters the season that can make or break its year, it's breathing a sigh of relief as consumers, more confident in the economy, seem to be heading back to the stores. With gas prices coming down and harrowing events that shook the moods and wallets of consumers, such as hurricanes, having faded from the headlines, analysts are predicting a more robust season than they once expected.

EINSTEIN, it turns out, was wrong. There are two constants in the universe: the speed of light and the rising tide of dollars coming from the American consumer's wallet. Through booms, busts and disasters, for more than a decade, U.S. stores have booked successively higher sales. Today's eighth-graders have never known a day when the American shopper was not standing guard against the forces of recession and paid-off credit cards. The last time retail spending faltered, even for a few months, was the fourth quarter of 1991, when layoffs and consumer confidence got so bad that President George H.W. Bush had to admit that "many families are having a rough go of it," according to news reports.

The housing market in California may look like a textbook case of superheated "irrational exuberance," but then how does one explain Spain? Home prices there have risen 130 percent since 1997, twice the run-up in the United States. These days, house price vertigo is more than a local or national condition. It's a worldwide phenomenon. The American housing boom in recent years is nothing compared with the price run-up in countries such as France, Spain, Britain, Ireland, Sweden and Australia, even though markets in Australia and Britain have cooled in the past year.

The nation's economy grew at a 3.5 percent rate in the first quarter, a stronger performance than estimates had suggested, the Commerce Department said yesterday. The report helped ease recent concerns that the economy's momentum might be flagging. Late last month, in its initial "advance" report, the government said the nation's gross domestic product grew at a lower-than-expected rate of 3.1 percent. Yesterday, however, Commerce said that after a routine fine-tuning of its preliminary figures, the revised data indicate that the GDP's growth rate was actually a stronger 3.5 percent.

Retail spending, which fuels about two-thirds of the nation's economy, will rise this year about half as fast as last year, as consumers are pinched by rising food costs, credit-card debt and stagnant incomes, the nation's top shopping trade group and other analysts predicted yesterday. The traditionally bullish National Retail Federation, in a report released at its annual convention in New York, predicted 3.5 percent growth this year in a broad category of retail sales that includes general merchandise, apparel, home furnishings, electronics, sporting goods and hobby, book and music stores.