Consumers Feel Better

Popular Economics Weekly

Black Friday, or the day after Thanksgiving, was an eye-opener. Sales jumped 7 percent, a record, and Monday’s cyber-sales followed its lead. How can consumers be spending so much with incomes that aren’t rising as much?

One clue is that consumers have paid down so much debt, while disposable income, as well as wages and salaries, have been growing at 2 percent—not great, but enough to keep things bubbling. In fact, it’s been enough to boost the Conference Board’s consumer confidence survey, at least, about future conditions. For instance, those seeing better job prospects in 6 months increased from 5.8 to 12.9 percent, while the proportion that sees jobs as hard to find dropped from 42.1 to 24.1 percent.


Graph: Inside Debt

Consumer confidence has surged this month, in other words, with improvement centered in employment. The Conference Board’s measure jumped more than 15 points to 56.0 from an upward revised 40.9 in October. November is the best reading since the debt-ceiling debacle and cut of the US credit rating in August.

This is while consumer credit expanded $7.4 billion in September benefiting once again from strength in nonrevolving credit. Nonrevolving credit outstanding, reflecting strong vehicle sales, rose $8.0 billion in the month to $1.66 trillion.

September brings in third quarter data which shows consumer credit expanding at a 1.6 percent annual rate, down from the second-quarter rate of 3.5 percent. Revolving credit during the quarter contracted at a 3.2 percent annual rate, more than reversing the second-quarter rate of plus 1.5 percent, said Econoday.


Another eye-opener was the surge in ADP private payrolls employment. ADP today reported that employment in the U.S. nonfarm private business sector increased by 206,000 from October to November on a seasonally adjusted basis. The estimated advance in employment from September to October was revised up to 130,000 from the initially reported 110,000. The increase in November was the largest monthly gain since last December and nearly twice the average monthly gain since May when employment decelerated sharply.


So, can it be true that consumers’ optimism is well-grounded? The Conference Board’s survey said those saying jobs are currently hard to get fell nearly five percentage points to 42.1 percent. Another key reading is a sharp improvement in income expectations over the next six months with more, 14.9 percent, seeing an increase and fewer, 13.8 percent, seeing a decrease. This is the first time since April that optimists have outnumbered pessimists.

Other positives in today’s report include an improvement in buying plans for both homes and appliances and a three percentage point decline in 12-month inflation expectations to 5.5 percent. It is of course the holiday season when shoppers like to shop, but this could be a turning point. Optimism leads to increased consumer spending, and we know it is consumer spending that drives economic growth.

Harlan Green © 2011

About populareconomicsblog

Harlan Green is editor/publisher of, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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