How long will US consumers keep buying?
Rising paychecks and expected job gains could offset high heating bills and a potential credit crunch.
By Ron Scherer | Staff writer of The Christian Science Monitorfrom the March 7, 2007 edition
Page 1 of 2
NEW YORK - The consumer is continuing to carry the economy.
But, as spring slowly arrives, will Americans flip open their wallets at the same snappy pace?
Some economists say, yes, Americans are confident that the economy will continue to grow, even if it's at a slower pace than last year. All they need to see are those familiar "Now hiring" signs and a little fatter paycheck in their pockets. But others worry that Wall Street's recent fainting spell, and perhaps a tightening of credit standards, could be the catalyst for Americans to pull back somewhat. And there is concern that some Americans will be hit hard in the pocketbook when they get their February heating bills.
"The biggest challenge is where Americans will find a new source of spending power," says Scott Krugman, a spokesman for the National Retail Federation in Washington.
One important clue came Tuesday when the Labor Department, as part of a report on productivity, reported that labor costs rose 6.6 percent in the final quarter of last year. Compensation on a year-over-year basis is up 4.9 percent.
"Wage growth has been pretty good," says Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla. "With the decline in energy prices since last summer, the consumer sector looks solid."
On Friday, economists will get even more up-to-date information when the government issues the February jobs report. Early estimates are for a gain of 120,000 to 130,000 new jobs – a pace that many economists consider to be just about right for the economy at this point. Even more important, weekly income is expected to rise by 0.3 percent, meaning income will be almost 4 percent higher than last February.
The relatively strong labor market is helping to get the economy through problems in the housing market. On Tuesday, New Century in Irvine, Calif., an issuer of subprime mortgages (issued to people with less-than-stellar credit ratings), was struggling to survive as its shares went down sharply.
"There are some worries about the relationship of the housing sector to the consumer," says Mr. Brown. "People have been using their homes as ATMs (through the use of home equity loans), but the wage increases have a much bigger effect."
Consumers are fairly quick to pick up on the relatively good jobs market. "Confidence remains strong," says Lynn Franco, director of research at the Conference Board's Consumer Research Center. "Consumers are very perceptive at picking up deterioration in the economy."
RSS feed
