Consumer Spending Improves ... Now Let's Hope the Politicians Don't Take Us Over the "Cliff"

Things aren't great in the U.S. economy, for sure, but they are showing signs of improving.  Housing appears to have bottomed, employment is picking up somewhat and consumers apparently are in a better mood.

And to be sure, mood matters. If the "animal spirits" of businesses and consumers reappear, we could begin to get ourselves out of this current financial mess during the next few years. At least we have reason to be hopeful now about the future, and that's always a good sign.

Consumers Holding Up Better Than Other Parts of Economy has this morning's breaking news:

"Today’s retail sales report continues a recent theme: Consumer spending is holding up better than other pieces of the economy.

That’s a reversal from earlier in the recovery, when manufacturing and exports drove the economy and consumers — saddled by debt and facing high unemployment — held back. Now steadying house prices and falling unemployment are boosting consumers’ outlook just as the manufacturing sector is cooling off amid weak demand from overseas.

The consumer economy likely isn’t quite as strong as September’s 1.1% rise in retail sales suggests. Much of the boost came from electronics stores, likely due to blockbuster sales of the iPhone 5.

Higher gas prices also played a role.

But even after taking out both electronics and gas station sales, retail sales were up 0.9%, and July and August’s sales were revised up as well. Sales have now risen for three straight months, after flagging last spring. Consumer confidence is back to pre-recession levels, suggesting spending could continue to grow heading into the holiday season.

Still, storm clouds loom on the horizon in the form of the fiscal cliff. At its worst, the package of tax increases and spending cuts, due to take effect at the end of the year, would take thousands of dollars out of the average family’s annual earnings and plunge the U.S. back into recession. A more likely scenario has Congress reversing some of the policies, but leaving others in place — notably, the end of the payroll tax holiday, which would be the equivalent of a $1,000 pay cut for the typical working family. (Calculate how much your taxes will increase here.)

That’s a hit that consumers, for all their recent resilience, can ill afford. Income growth remains weak. Unemployment remains high. And as last year’s debt-ceiling debacle demonstrated, consumers’ confidence can flag quickly if they lose faith in their leaders."

Summing Up

We're making slow but steady economic progress.

However, the confidence of We the People in our economic future is very fragile and, besides that, politicians always have an uncanny way of being able to snatch defeat from the jaws of victory.

Accordingly, let's all take a deep breath and keep our fingers crossed as we get the elections behind us, proceed to year end and remain hopeful that the resolution of the fiscal cliff issues won't unnecessarily impede the economic recovery into 2013 and beyond.

All that said, this is not now nor is it likely to become anything like we've known previously as a  "normal" economic recovery.

We simply have too much debt, ongoing deficits and serious vigorous global competition for  "old school normal" to become the case again anytime soon.

Thanks. Bob.