.

SmartMoney Blogs

Real-Time Advice
Our real-time advice on how market shifts and news impact you and your money

Employment Is Up, Why Isn’t Spending?

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.

Comments

We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comments (5 of 15)

View all Comments »
    • The State Fair is a tradition and might lend a sense of ncmlaroy at a time when so much of life seems uncertain. It reminds us of a time when things were more simple. Maybe Fair-goers will renew their appreciation for the small things in life, like a fresh ear of corn.Then again, maybe they just go for the unlimited milk.

    • Floretta no one can do that today. America is broke to the core.
      And who knows when if ever it will turn around. We had people in office that have made poor choices . Now the people are paying for it.
      When the rich act like the haves and have nots they have no clue. Unless they had nice house and a cushioned job that was taken right from under them when this whole thing started. I had one friend who was married had nice house but then went through a divorce and lost the house.
      Has nothing to do with the unemployment rate but as an example of losing something. Sometimes you don’t know what you’ve got until its taken away from you. In the line of work I am in I go through big nice expensive houses all the time. I think to myself sometimes people don’t know how great they have it until its totally gone!

    • Employment isn’t up that much honestly. I know many people still out of work or just out of college struggling even to find a retail job. People have become smart and don’t buy as much as they used to. There for they are saving money not spending . Because if the economy is still in the toliet people want back up plan. I know I plan my rent a few months out when I can. Just incase I end up having to worry about it.

    • Employment may or may not be up (I think it is, in some regions) but wages are not. Real wages have been in a decline for 30 years. Even if every man woman and child who wanted a job got one, they still could not live on it as we used to in the 1950s and 1960s, even the early 1970s. My father supported 11 people on one civil service salary, complete with house (1), vacations (1-2, local) food, clothing, partial tuition for all 9 children – and never made more than $40K. Who can do that today?

    • Employment is up. Where? The numbers have been jiggered to make it look like the unemployment rate is down, but that doesn’t mean employment is up. Really, the MSM needs to catch on to the fact that people read more than one headline, and these days lots of those other headlines involve companies cutting back or closing down.

About Real-Time Advice

  • How breaking news — in the markets, Washington, and around the world — affects you and your money. Have a question about how current events may change your financial future? Email us at ask@smartmoney.com.

.