Increased spending by the rich sets the stage for job recovery


The economy is booming?! Well, at least by certain measurements we are booming.

The latest data in for the last quarter of 2010 shows consumers increased spending at the fastest rate since 2006. That’s a big change. Economists are talking about “the active consumer” again, to signify that we’re done with the unofficial buyer’s strike we’ve been on and suddenly we’re out there spending money again.

But who’s “we”? Bloomberg says this huge booster shot to the economy has been fed overwhelmingly by people at the upper end of the income spectrum. We know a sliver of the population earns a big share of national income and a lot of people share a smaller piece of the pie. This has nothing to do with a class warfare angle; it’s just what happens in capitalism.

So the wealthy are spending big bucks at Tiffany, Neiman Marcus and other high-end retailers again. In fact, sales of high-end retailers are up 8% year over year. That’s a huge comp number. Retailers at the other end of the spectrum, meanwhile, have sales that are just inching along because of continuing unemployment among their customer base.

I know this is sounds bizarre, but economists are trying to figure out if that small sliver of wealthy people pumping money into economy may have the effect of bringing the rest of us along. We won’t have a true feel for that until May or June. But being the optimistic kind of person I am, I do believe it will have a positive impact.

I analyzed the sales and profit figures of big publicly traded companies for the fourth quarter and there’s one trend I’ve seen in so many analysts’ reports and in a nice write-up in Barron’s magazine: American companies reported big profits last year, but those figures were mainly because of cost cutting. What has changed now is that sales are actually rising.

Historically, when you get to the point where sales are rising, employers have the confidence to start hiring again. That’s what will cause a real recovery to spread across income levels. We can’t have a true, widespread recovery in America until we have the jobs back. And that’s what I believe we’ll see this year. So, I’m going on record with the following:

PREDICTION: We will see a job recovery sometime this year, as employers emboldened by higher sales get the confidence to start hiring again.  Let’s check my words sometime this summer and see how my prediction pans out.

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