CLARKONOMICS: How are you feeling about the country right now and the economy? It really depends on who you are.
I recently saw a big headline from The New York Post blaring “Shoppers holiday humbug!” The article detailed a new study from Discover Card. Discover routinely tracks consumer sentiments and their newest monthly report shows sentiments are at the lowest point they’ve been over the last 12 months. More than half of respondents in the 8,200-person study say they will go out to dinner less in 2011. Roughly half plan to spend less on their homes, vacations and other purchases. One in 4 of respondents said their finances are “poor,” and only 1 in 4 said the economy was improving.
At the same time, other surveys and statistics show different results. For example, auto sales for 2010 were up 10% vs. 2009. The number of people applying for unemployment has dropped 4 months running. And high-end retailers are reporting huge sales increases.
So how do you square all this conflicting info? I see 2 big explanations and a third possibility.
First, many people over the last few years have reduced their debt by meaningful amounts. They’ve also benefitted from lower interest rates on their debts. So their obligations are smaller and there’s more breathing room financially after the bills are paid.
Second, people who earlier were afraid of losing their jobs are now feeling more secure. Things have stabilized at many employers. That’s given people the license to feel that they can open their wallets again.
There’s also another factor here. People who are at the higher end of the income scale often make their purchasing decisions based on how well the stock market is doing. They get a lot of their wealth from stocks and there’s been a big run-up in the stock market over the last couple of years. So that’s why I believe the high-end retailers are doing so well.
I am an incurable optimist; that’s just who I am. So I look at all this info and still believe we are in recovery mode in the United States. Yet I also know employment will be slow to come back, primarily because we entered the recession with high levels of debt as individuals and the work’s not done yet on that score.