Will Shoppers Save the Economy?

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David Paul Morris / Bloomberg via Getty Images

A customer browses flat screen televisions at a Costco Wholesale Corp. store in San Francisco, California, U.S., on Tuesday, Dec. 6, 2011.

The U.S. consumer is back, but how long can that keep the economy going?

One of the growing bright spots in the economy recently has been Americans’ willingness to hit the mall. In the third quarter alone, higher consumer spending accounted for 73% of the rise in the GDP. Holiday shopping looks like it will be much stronger than initially projected. Consumers spent 16% more during the Black Friday weekend than they did a year ago. On Tuesday, the Commerce Department reported that retail sales for all of November were up 0.2% compared to October, which was less than expected. But much of the disappointment came from restaurants, which saw a drop in receipts in November. Clothing, electronics and appliance sales were all up. What’s more, consumer expenditures have been up in three of the past four months, so analysts said they expected some drop off in November to reflect how strong spending had been in prior months.

(PHOTOS: Black Friday)

Still, last week, the Federal Reserve said that consumer purchases rose in the third quarter despite the largest decline in household net worth since the beginning of the financial crisis. What’s more, wages, after rising only modestly so far this year, fell last month. That has led some to ask whether the rise in consumer spending is sustainable.

First of all, the drop in net worth was not a real reflection of how much we have to spend. Personal incomes were actually up slightly in the quarter. Instead, much of the drop in net worth came from a dip in markets in the quarter. Stock and mutual fund holdings were responsible for $2.2 trillion of the $2.5 trillion drop in the value of assets held by U.S. individuals in the third quarter. The value of our collective real estate holdings was up. Brokerage accounts do hold some sway on how wealthy we feel and therefore how much we spend. But I would guess less so than in the past. The recent volatility of the stock market has made investing wealth seem less real. Plus, in times when the market is falling, most of us are inclined to check our accounts less.

(MORE: Are There Really More Dollar Stores Than Drug Stores in America?)

Second, some worry that rising spending is unsustainable because it comes at the expense of savings. Eventually, consumers won’t have anything left in the cookie jar to dip into. Especially because that money being put aside, in many instance, is money that could be going toward paying down debt. But that’s not exactly clear. While numbers from the Commerce Department show that savings rates are falling (3.5% vs. 5.3% a year ago), data from the Fed indicates that the saving rate is rising, up to 7.4%. It’s not entirely clear why the data is going in opposite directions. The Fed’s survey showed an increase in income that the Commerce Department data did not. And the recent increase in the number of people quitting their jobs – often for better paying positions – seems to suggest that at least some employers are beginning to offer higher salaries, at least when it comes to hiring away from competitors.

Most importantly, consumer spending is one of the best gauges of whether people are feeling optimistic about the economy. A study out this week from the National Bureau of Economic Research shows that optimism plays a bigger roll in recessions and recoveries than was previously thought. So the rise in consumer spending might not have to be sustainable, as long as it indicates that the other parts of the economy – namely corporate investment and hiring – are headed up as well.