A Silver Lining for Retailers in Consumer Spending Report?

Consumer spending rose for the first time in seven months as consumers eased back into the marketplace. But don’t expect a quick return to consumers’ free-spending ways.

Shopper with bags
Kirsty Wigglesworth
Shopper with bags

The 0.6 percent increase in consumer spending in January, reported by the Commerce Department earlier Monday, may speak more to seasonal anomalies than to changes in consumer patterns.

At best, it may be a sign that the worst declines are over.

Consumers typically spend the least in January and February. Usually, they are taking a breather from go-for-broke spending during the holidays.

Consumers cut back sharply on spending at the end of 2008, so January may have come on a bit stronger as a result.

“Consumers remain very worried, almost to the point of paralysis,” says Adam York of Wachovia. He says he expects the report is consistent with his expectation that the first quarter gross domestic product will not be as bad as it was in the fourth quarter.

Another sure sign that it’s too soon to call for a rebound in consumer spending is that the savings rate surged in January, according to Scott Hoyt, an economist at Moody’s Economy.com.

The report showed personal savings rose to its highest level since 1995 as consumers continue to squirrel away cash amid economic and job insecurity.

Savings jumped to an annual rate of $545.5 billion, the highest level since monthly records began in 1959.

“That is clearly not consistent with consumers who are spending aggressively,” Hoyt says.

Hoyt expects consumers to remain conservative with their spending and savings due to a both their job worries and to the loss of wealth many have suffered. If consumers have savings goals for retirement, college education or even to make a large purchase, the chances are they have taken a major step back Hoyt says.

“If they want to achieve those goals they’re going to have to save more aggressively,” Hoyt says. And that doesn't bode well for spending.

“The long-run trend in spending is still downward,” he adds.

Still, we take good news where we can these days, and the bright patch may mean that the pace of declines may be slowing.

“Maybe we have seen the worst of the declines, but we are still looking for a long, slow, drawn out recession…but we may have gotten to the point where we will see temporary upticks in some data,” York says.

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