Rich and Cindy Lewis had spent so much money to launch their home-renovation business, there wasn't a lot left over for anything else.
But when the opportunity came to buy a $6,000 motorcycle two months ago, they splurged. "We finally decided to do something recreation-wise," Mr. Lewis says.
That's the way it's going in America's all-pistons-firing economy.
Plentiful jobs and low inflation are pushing consumer confidence close to the record levels set in the 1960s.
Much of it is being driven by the best economic conditions in US peacetime history. But there are other factors at work as well. Baby boomers, entering the time of life when they earn the most, have accelerated their spending - and are exhibiting subtle differences in buying patterns than previous generations.
Behind all this, however, lurks a danger: Will consumer spending - a prime reason for the boom times of the 1990s - force higher interest rates and shut down the economy?
"Some way or another the economy is going to slow," says Ezra Greenberg, a senior economist with Standard & Poor's DRI, an economic research firm in Lexington, Mass. Either consumers take a break from the checkout counter or the Federal Reserve forces them to do so by raising interest rates beyond last week's 0.25-point hike. But "we don't see some shock coming along which is going to cause some dramatic pullback."
So far, there's little evidence of a slowing. Last week, the nation's largest retailers reported surprisingly strong sales for June. According to the Merrill Lynch retail index, department stores and discount chains saw sales rise 6.3 percent last month, higher than the 5.4 percent hike in May.
And the sales are not concentrated in any one sector. Discount chains, such as Wal-Mart and Kmart, reported strong gains. So did specialty clothing chains, such as The Gap. Even recreational vehicles are posting impressive sales, with a record 9.3 million vehicles on the road and nearly 1 in 10 vehicle-owning households owning one.
Consumers are financing the buying binge with debt. In May, their outstanding credit surged by 10.9 percent, the biggest increase since January, the Federal Reserve reported last week. (The total does not include mortgage debt.) Americans now owe a seasonally adjusted $1.34 trillion.
"The savings rate is negative," says Sung Won Sohn, chief economist at Wells Fargo & Company, based in Minneapolis. "Consumers are letting the stock market do the savings for them. And that's perfectly OK if the stock market remains strong."
But if it doesn't, then consumers are likely to feel less confident and cut back spending. Mr. Greenberg of Standard & Poor's DRI forecasts a stock market correction early next year. And while such predictions are highly speculative, he acknowledges, a correction is inevitable. "The only question is how long consumers will continue to feel so rich."
For now, they can joke about the spending. "It's an addiction," says Amy Alfeld of the funds she and her husband have put into their garden in nearby Godfrey, Ill. "We realize that whatever money we poured into it, it probably wasn't increasing the value of the house. If anything. It would be intimidating" to would-be buyers.
Still, they have employed six carpenters for their garden in the past five years.
Such exuberance isn't based solely on a booming stock market. There are solid reasons for it, economists say. "We should take some joy in the economy," says Gail Fosler, chief economist with the Conference Board in New York and home renovator in her own right. Americans "worked hard to get here."
Businesses have modernized and trimmed down to become globally competitive, which has boosted employment and income at home. "Inflation has really come down in a lot of nondiscretionary areas, like food, energy, apparel, so it leaves consumers with a little more discretionary money for big-ticket items," Ms. Fosler points out.
Another big factor: the maturing of baby boomers. "We have a real concentration of income among people who are in the mature phase of their professional work experience," she adds. They make up only 40 percent of households, but baby boomers account for roughly 80 percent of income growth. And with the stock market pumping up their retirement plans, they reach a point where they've saved enough that it's OK to spend, she says.
After she and her husband saved "pathologically" for years, Fosler says, "we've done some major [home] renovations like every other baby boomer in America."
But the high inflation and deep recessions of the '70s and '80s have had a curious double-edged effect on the Boomers. It has made the current period look even brighter than it is. (Four percent annual growth in consumer spending isn't that unusual, Fosler says.) It may also temper Boomer optimism about the future.
"I think we'll start seeing a little more belt-tightening from people," says Lewis, the Alton contractor. "Everything's looking real rosy, but they keep looking for that black cloud to roll in."