Return of the Shopper: Why Is Consumer Spending on the Rise?

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Even with high unemployment numbers, a struggling real estate market, and a consensus opinion that a comprehensive economic recovery will be a slow slog, consumer spending is on the rise. Explanations anybody?

BusinessWeek offers a few theories:

According to data released May 14, U.S. retail sales rose 5.7 percent in April from a year earlier. March’s 7.8 percent increase was the biggest jump in retail sales since August 2005.

Market bears and pessimistic economists have offered a variety of theories for the strength in sales. One suggestion is that many homeowners are skipping mortgage payments, and, while they wait for their homes to be foreclosed upon, they’re out shopping with money they’re saving.

Or perhaps they’re going to Disneyland with they money they’d otherwise be using to make mortgage payments. Either way, such spending doesn’t bode well for a sustained economic recovery. Neither does this other thought presented by BW:

Another theory is that the opening of consumers’ wallets is merely temporary.

“Clearly, the economy and consumer sentiment have improved since their weakest point in 2009, but we believe that both are still somewhat unstable and fragile,” Target (TGT) Chairman and Chief Executive Officer Gregg W. Steinhafel told analysts May 19. Target reported earnings that were 3 percent higher than estimates of analysts surveyed by Bloomberg. The economy and consumers “will likely continue to experience occasional setbacks as the year progresses,” Steinhafel said.

Or perhaps it’s the stock market’s rise that’s resulted in a corresponding rise in consumer confidence and spending:

Fidelity Investments said May 19 its average account balance rose more than 55 percent from Mar. 9, 2009—the market’s lowest point last year—to Mar. 9, 2010. At the end of the first quarter of 2010, the average account balance was $66,900.

Such a revival in net worth seems to be making Americans more confident. A survey by Deloitte, released May 19, shows 55 percent of consumers “think the economy has started to recover from the recession” and 64 percent think “their household financial situation is the same or better compared to a year ago.”

Another theory is that, simply put, American consumers are sick and tired of not spending money. Spending is easier and more fun than not spending, and after a year or so of living cheaply, shoppers want to get back to shopping like they used to, “new frugality” be damned.

And what are we spending money on? Things we just “can’t” live without, and that have continued to be purchased throughout the recession: US News & World Report has a list of 10 such “can’t live without” items, which includes smartphones, movie tickets, pets (and accessories), and coffee.

Signs the Economy Isn’t a Total Basket Case

What We’re Buying More of During the Recession