March 30, 2010 in Business

Consumers slowly show signs of springing back

Associated Press
 

NEW YORK — Signs of life in consumer spending are sprouting this spring.

A partial rebound in consumer confidence, a positive report on January home prices and an expected strong March from retailers suggest Americans are cautiously perking up.

The Conference Board said Tuesday its Consumer Confidence Index rose to 52.5 in March, recovering about half of the nearly 11 points it lost in February. Analysts expected a reading of 50 for March, but the index is still far below the 90 reading that’s considered healthy.

February’s 46.4 marked the lowest level since April 2009 and also erased three consecutive months of improvement. In January, the reading was 56.5.

Economists watch the figures closely because consumer spending, including health care and other major expenses, accounts for about 70 percent of U.S. economic activity and is critical to a strong economic recovery.

“We’re a lot better off, but we have a lot more improvement to go,” said Michael P. Niemira, chief economist at the International Council of Shopping Centers. He said shoppers have “more willingness to spend” and are starting to trade back up in areas where they had cut back.

Separately, the Standard & Poor’s/Case-Shiller 20-city home price index showed prices rose 0.3 percent from December to January, the eighth consecutive monthly gain. Among the 20 cities in the index, 12 rose. But there’s some worry the momentum in the housing market won’t be sustained. Home sales sank during the winter, and government incentives that have propped up the market are ending.

Meanwhile, merchants are expected to report a 3.5 percent gain for March when they release sales figures next week, according to Niemira’s estimate, which was upgraded from his original 2.5 percent projection. The figure is based on sales at stores open at least a year, considered a key indicator of a retailer’s health.

Retailers reported a 3.7 percent increase for February, marking the biggest increase since November 2007, a month before the recession began.

The index excludes Wal-Mart Stores Inc., the world’s largest retailer, which stopped reporting sales figures on a monthly basis.

Still, as consumers cautiously return to some more expensive brands and stores, they’re still buying differently than before the recession, keeping some frugal habits while shedding the more extreme cutbacks.

A year ago, Tracy Smiley joined many Americans in taking frugality to new extremes as she struggled with rising expenses and saw her father’s retirement funds evaporate as the stock market dropped to 12-year lows.

She switched to store brands for almost everything, choosing an even cheaper knockoff of Hamburger Helper. She bypassed Macy’s and Abercrombie & Fitch in favor of the sale bins at Target and Old Navy.

But the Lacey, Wash., resident, feeling better about her husband’s raise, her car loan being paid off and the economy, has started to trade back up for certain items, such as to beef from pasta.

“I don’t think I will go back to how I was before. But I still want to buy better foods,” said the 28-year-old mother of two.

February’s plunge in confidence jolted investors, but March’s report appeared to confirm that last month’s reading was an aberration. Many factors had dampened confidence, including severe weather that had shut businesses and thwarted job searches, and a stock market hurting because of international worry about Greece’s national debt.

Still, March’s reading, buoyed in part by a rally in the stock market, shows consumers no more optimistic than when the economic recovery started nine months ago. In June 2009, the reading hit 49.3.

Confidence has been recovering fitfully since hitting a historic low of 25.3 in February 2009. But many economists believe it will remain well below healthy levels for at least another year or two. That’s because key pillars of the economic recovery still need to improve more.

While housing woes are still a concern, many economists say Americans won’t spend with vigor until the job picture improves dramatically.

So far, that hasn’t happened, but there are positive signs. Economists surveyed by Thomson Reuters expect the Labor Department to report Friday that in March unemployment was steady at 9.7 percent and employers added 190,000 jobs, after shedding 36,000 in February.

The Conference Board survey — based on a random survey of consumers sent to 5,000 households from March 1-23 — did show some easing of worry about the job market, but Americans are far from optimistic. Gary Thayer, chief economist at Wells Fargo Advisors, believes people need to see job creation that’s “broad-based.”

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