Monday, October 29, 2012

Consumers Feeling Better ... After the Election, Maybe Businesses Will, Too

Consumers are feeling better about things, and their spending is showing it. Housing and auto sales have both perked up, and we could be in for a better than expected holiday selling season. In fact, consumer confidence is getting stronger, too.

{NOTE: The latest monthly report on consumer spending has more welcome news in U.S. consumer spending climbs 0.8% in September.}

On the other hand, businesses have adopted a wait and see approach. My guess is that after the election and tax and fiscal cliff issues have been resolved, at least temporarily, businesses will begin to invest again, too.

Of course, the situation is both fragile and fluid, so we'll have to stay tuned to see how things develop over the next several weeks and months.

Retail Therapy for Sad Businesses highlights the different moods and behaviors of consumers and businesses today:

"Businesses have been downbeat on the economy, and they may even be justified in their glumness. Even so, they may be compelled to succumb to the growing optimism of consumers.

Friday's report on gross domestic product showed that consumer spending grew at a 2% annual rate in the third quarter, while another key read on household spending, residential construction, rose 14.4%. Combined, the two accounted for slightly more than three quarters of the 2% climb in overall GDP. Meanwhile, business spending contracted at a 1.3% rate. . . .


But it is also important to recognize that a big reason why consumer attitudes have improved is that the labor market appears to have perked up.

Friday's Michigan sentiment report showed the number of households expecting unemployment to increase over the next year slipped to 19% this month from 20% in September, matching a 13-year low. Meanwhile, Thursday's weekly report from the Labor Department showed that the number of people filing for unemployment continues to drift lower. So the message is that businesses, for all their caution, may be stepping up hiring.

Indeed, by outplacement firm Challenger, Gray & Christmas's count, retailers in September announced plans to hire 413,700 workers for the holiday season. UBS economist Sam Coffin points out that is roughly double the seasonal hires that retailers announced during the entire September-to-December period last year.

The picture that emerges is one of companies that are experiencing better demand but are nonetheless worried about the future. In many cases, they need to bring in more workers despite this. After all, there is no easy way to move more goods out of the warehouse without hiring an additional forklift operator, or to sell more items at a store without hiring another cashier. But companies can put off plans to expand the warehouse or replace the old cash register.

The upshot is that if leaders in Washington are able to hammer out some sort of resolution to the "fiscal cliff" after the election is over, companies will need to get their operations in line with better consumer demand. Spending on capital equipment, and the makers of that equipment, could see a sudden turn of fortune."


Now let's hope we see some adult behavior in Washington soon.

If we do, widespread measurable economic improvement could take place as early as sometime late next year.

Then perhaps in another year or two, we could get back to what in the "good old days" we referred to as a normal economic growth rate of 3+%, along with a better fiscal situation and an unemployment rate near or below ~6%.

Let's hope so.

Thanks. Bob.

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