The American consumer is back, with an asterisk
Boston — Written off in the aftermath of the Great Recession, the U.S. consumer is back. Not quite with a vengeance, but definitely back.
It’s noticeable to Marie Galvin, owner of GALVIN-ized in Boston, where handmade women’s hats — a discretionary purchase — sell for anywhere from $35 to $85.
“This year, since the Kentucky Derby, it all seems out of control. Everybody was shopping for good hats,” said Galvin, who wears her wares on the sales floor. “I think it’s up a good 50 percent from last year.”
Same is true for Ron Lewis, owner of Designer Cabinetry in Newton, Mass., where his customers often spend $40,000 to $80,000 for high-end kitchen cabinets and appliances.
“It’s been a slow improvement until this year, where there has been a marked improvement,” said Lewis. “The people with money have more money than ever.”
Nationally the story is largely the same, whether it’s in the finance-rich suburbs of Charlotte, North Carolina, the sun-kissed condos of Miami or the most populous state, California, where the jobless rate is falling. Consumption powers about two-thirds of all U.S. economic activity, and it’s noticeably back.
Spending by the rich never tailed off, and it accelerated alongside the soaring stock market gains of recent years. On the bottom economic rungs, the poor still struggle. So much so that Dollar Tree and Family Dollar recently announced plans to merge to compete against Wal-Mart for what Family Dollar CEO Howard Levine called “a more financially constrained consumer.”
But across the broad middle of the income spectrum, a bevy of indicators shows that ordinary Americans feel better about the economy and are loosening the purse strings. The most obvious example is car sales, on pace to exceed 16.3 million this year.
“It gets better all the time, but it’s not even,” said Michelle Krebs, an analyst with AutoTrader.com.
July retail and food sales are 3.7 percent above July 2013 levels, the Census Bureau reported earlier this month, 6.4 percent higher for autos and other motor vehicles.
Rob Gagne, a longtime resident of the blue-collar Boston neighborhood of Dorchester, feels better about the economy. The jack-of-all-trades employee of an architectural firm is prototypical middle class. But he’s splurging on a $2,100 custom-made bed, and after several years of belt tightening, he recently treated himself to a cross-country motorcycle trip.
“I wouldn’t have been able to do that. It does take some money to do that,” he said. “I probably could have, but wouldn’t have.”
Jobs are another important signpost for future consumption.
There were 4.7 million job openings in June, the highest level since February 2001, and a signal that companies are more optimistic about their future and want to hire accordingly.
At the same time, roughly 2.5 million Americans quit their jobs last month, the highest since June 2008. That’s a good thing, because it means people feel confident they can take advantage of other job opportunities.
The number of people quitting “is highly correlated with consumer confidence, which is highly correlated with consumer spending,” said Ed Yardeni, a veteran investment strategist.
Another indicator is the Consumer Confidence Index, published monthly by The Conference Board, a business research group.
The group finds that people’s confidence in their current situation is finally matching their traditional optimism about the future.
“This is the consumer saying ... it finally has gotten better,” said Ken Goldstein, a veteran economist with the group.
The result? Goldstein said that pent-up consumer demand is about to be unleashed after several false starts.
“Finally, here it is, it’s finally happening,” Goldstein said.
Sales, Percent Change from July 2013 to July 2014
All Retail Sales 3.7 percent
Retail Trade Stores 3.4 percent
Health/Personal Care Stores 7.3 percent
Auto/Motor Vehicle Dealer Sales 6.4 percent
Food Services and Drinking Places 6.2 percent
Clothing/Clothing Accessory Stores 1.6 percent
Furniture/Home Furnishing Stores 2.5 percent
Electronics/Appliances Stores 1.3 percent
Building Materials/Garden Supply Stores 5.1 percent
General Merchandise Stores 1.1 percent
Department Stores -3 .0 percent
Source: U.S. Census Bureau