The Economy Gets a Boost With Increased Consumer Spending

Ready for some good news about the American economy? American consumers have good reason for optimism. Retail sales made their biggest single-month jump in February, increasing by 1.1 percent over January. This fit the prediction of economists for the month, but the cherry on top is that the revised data for December and January came in higher than originally thought. All this points to a consumer more willing to part with his hard-earned cash.

Or does it? A big chunk of the spending was on gasoline. With gas prices increasing sharply over the last month or so, it’s hard to say at this stage how much of the increase in consumer spending is just people paying to go to and from work every day. With gas prices up 3.3 percent for the month of February, the increased spending on gas could quite well be significant.

Simply Recovering Vs. Recovering Strongly

But it’s clear that increased gas prices probably do not account for all of the spending. Recent job figures don’t exactly have economists dancing in the streets, but they do show some significant improvements.  All told, over 200,000 jobs were added during the month of February. The bad news — that the unemployment rate remained the same — was tempered by the news that many people who had previously given up were looking for jobs again. Justin Wolfers, a visiting economics professor at Princeton, told the Washington Post that the debate is between those who think the economy is recovering and those who think it’s recovering strongly.

Stock Market Rally

There’s yet another indication that the economy is in recovery: The Federal Reserve says that the country’s biggest banks are healthy again. This is perhaps the reason for the recent stock market rally. Three major indices — the Dow Jones Industrial Average, NASDAQ Composite and the S&P 500 — increased just under 2 percent, achieving heights not seen since before the current financial crisis.

Job Growth

Still, any optimism should be cautious. In 2011, America showed job growth during the first quarter. This did not last even into the second quarter of the year, however. Although, this year is already different in important respects. Health care, hospitality and, perhaps most importantly, manufacturing all posted gains. The bleeding has stopped in the public sector. Furthermore, February is the 17th consecutive month that jobs have been added to the economy. While 13 million Americans remain unemployed, everything indicates that the economy is on the upswing. The hope is that any recovery can be sustained.

Gas Prices

The increase in gas prices hasn’t been as destructive or growth retarding as one might immediately think. Auto manufacturers reported a 1.6 percent increase in the sale of new cars, with discretionary spending up 1.8 percent. Department stores who have taken huge hits during the recession posted gains of 1.5 percent, healthy and respectable by any measure.

The Bottom Line

Indeed, consumer spending and a stronger jobs market are the two things that have been missing from the economic recovery. Much of the pre-recession economy was driven by two things: construction and consumer spending in the United States. If China is the world’s factory, then America is the world’s department store. With more Americans spending money and working, the prospect of recovery looms on the horizon in a far more concrete way than before. Add a robust stock market into the mix and America — and the world — have reason to put a little extra spring in their step.

Nicholas Pell is a freelance writer based in Hollywood, CA. He’s pleased as punch to see his friends working again.