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The U.S. Consumer is Finally Bouncing Back

Economics / US Economy Dec 02, 2011 - 05:39 AM GMT

By: Money_Morning

Economics

Best Financial Markets Analysis ArticleDavid Zeiler writes: Consumers shed housing debt in the third quarter while ratcheting up spending elsewhere, raising hope that the single biggest driver of the U.S. economy - consumer spending - is back on the rise.

Mortgage balances fell 1.3% in the July-September period, according to data from the Federal Reserve Bank of New York, while overall household debt shrank by 0.6%.


Such reduction of debt - deleveraging in economist-speak - has over the past couple of years dampened consumer spending, which accounts for 70% of the economy. But as consumers make headway on their obligations, they have more money to spend on things other than paying down debt.

"I think it's a positive sign," Mark Zandi, chief economist at Moody's Analytics (NYSE: MCO), told The Wall Street Journal. "It means households are getting their financial house in order and that their heavy debt loads are much less weighty than they were."

In fact, consumers are so eager to get back to spending again that debt other than mortgage balances actually increased slightly, and credit card inquiries were up for the second straight quarter.

"There is a silver lining in all of this," Anthony Karydakis, chief economist at Commerzbank AG (PINK: CRZBY) in New York, told Reuters. "Slowly but steadily, consumers are exploring more normal ways of returning to a more normal pattern when it comes to borrowing habits."

Confidence Up
An unexpected spike in the Conference Board's November consumer confidence report released on Tuesday is another sign that people are more willing to open their wallets.

The measure rose from 40.9 in October to 56 - its steepest increase since 2003. Economists had forecast a rise only to the mid-40s. Until the November reversal, the consumer confidence index had declined steadily since February.

Of course, the index is still far below 90, a level that indicates a normal, healthy economy. But at least it's finally heading up.

"This is a huge rise in consumer confidence. It gets us back to second-quarter levels and further underscores the dramatic move that we've seen in consumer spending," Lindsey Piegza, economist at FTN Financial, told Reuters.

Expectations for the overall economy also rose sharply from 50 in October to 67.8 in November, the Conference Board data showed. And more people are expecting a raise in the next six months, as that indicator rose to 14.9% from 11.1%.

"Consumers may not be as downbeat and downtrodden as previous surveys have indicated, and could signal that the recent gains in personal consumption could be sustained," Millan Mulraine, TD Securities' economics strategist, wrote in a research note.

A Record Thanksgiving
The best evidence that consumers are in a more upbeat mood is the retail data from the extended Thanksgiving shopping weekend. Spending jumped 16.7% over the same period a year ago to a record $52.4 billion, according to the National Retail Federation.

Not only did the number of shoppers increase from 212 million last year to 226 million this year, but the average amount spent rose as well, from $365.34 to $398.62.

"American consumers are taking a deep breath and making the decision that it's okay to go shopping again, in spite of high unemployment and uncertainty over the stock market and housing market," Ellen Davis, National Retail Federation vice president, said at a media briefing Sunday.

While it's true many consumers were lured to stores by heavy discounts and special deals, the strong Thanksgiving weekend numbers could well signal a better-than-anticipated holiday retail season. According to BIGresearch, just 38.8% of consumers finished their holiday shopping over the weekend.

Some longer-term trends are also pointing in the right direction. For instance, consumer spending has increased by 2% or more year-over-year every month for the past year but one.

Although bigger issues, such as the Eurozone debt crisis and the Congressional stalemate over how to handle the fiscal problems in the United States, will continue to present challenges, it's clear that U.S. consumers are tired of cutting back.

"The consumer is basically saying, 'You know what? We've got frugal fatigue. We're tired of not spending,'" Marshal Cohen, an industry analyst for the NPD Group, told KABC-TV in Los Angeles.

Source :http://moneymorning.com/2011/12/02/bailout-bandits-biggest-borrowers-from-u-s-federal-reserve/

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