By Quentin Fottrell
The job market continues to improve, according to new data, but economists say consumers have too much on their minds to start spending.
Jobless claims are down for the week ending Feb. 4 and unemployment fell to 8.3% in January, yet consumers are still not willing to go shopping in earnest. “There’s no gold rush to spend, spend, spend,” says Scott MacDonald, head of research at MC Asset Management. “This is not a normal economic recovery.”
Retailers reported disappointing sales for December. There are 830,000 fewer jobs – or 5% less – in the retail sector than before the recession in December 2007, according to the Bureau of Labor Statistics. The New York-based Conference Board’s confidence index – a measure of people’s optimism in relation to saving and spending – fell to 61.1 in January from 64.8 in December – far below expectations. A reading below 50 would indicate a recession, but economists say it shows that consumers are still skittish.
After a traumatic 10 years, they have every reason to be spooked by newspaper stories about job losses, experts say. News Thursday that PepsiCo will cut 3% of its global workforce – or 8,700 jobs – may be far more potent a piece of information for consumers than January’s jobless figures. “This is not a company that people expect to be cutting jobs,” MacDonald says. Statistician John Williams says people don’t take unemployment data into account. “Weekly jobless claims usually are meaningless on a week-to-week basis and have no immediate direct relationship to consumer spending,” he says.
Consumers are also hobbled by stagnant wages, economists say. “This is not a time for employers to raise wages,” says T. Doug Dale, chief investment officer at Security Ballew Wealth Management in Jackson, Miss. Earnings are up only 2.4% since before the recession — adjusted for inflation that equates to a 4% decline in purchasing power, according to Patrick O’Keefe, director of economic research at J.H. Cohn consultants in Roseland, N.J. “Consumers are spending more on necessities like gasoline and food, so expenditure on other luxury items has been constrained.”
And many homeowners are not in the mood for retail therapy when their homes are in negative equity, Dale says. More than one in five mortgages are currently underwater, which equates to around $700 billion in negative equity, the Federal Reserve estimates. “Affordability of housing has improved and the market has hit a bottom,” Dale says, “but there is still a substantial amount of supply out there and many people are either unwilling or unable to sell.”
That said, there are tentative signs that consumers are willing to spend. The National Restaurant Association’s Restaurant Performance Index rose 1.6% to 102.2 points on the month in December, its highest level in seven years. Sales of cars and trucks rose 11% to 913,287 in January, according to Autodata Corp. “Maybe it’s a mixed picture out there for consumer spending,” says Mark Perry, visiting scholar at the American Enterprise Institute in Washington, DC.
There have also been signs that borrowing is on the rise, but analysts say that was fueled largely by federal student loans. This indicates that those without jobs may be going back to school, MacDonald says, and people may have been using their credit cards to get through the holidays. “This is period of structural adjustment, not a normal economic recovery,” he says.