By
Matthew Philips on May 13, 2013
At the end of last year, economists were fretting about how bad the hit to
consumer spending would be from the reinstatement of the payroll tax. Five
months into the year, wefre still waiting for the pain. Despite having smaller
paychecks, Americans just keep on shopping, bucking assumptions that theyfd
tighten their belts in 2013 and slow the economy as a result.
In the strongest sign yet that U.S. consumers are shrugging off higher taxes,
not to mention federal spending cuts, retail sales
notched a 0.1 percent increase in April. Not a big increase, but a big
surprise. The consensus was that it would fall by 0.3 percent. Previous data
also look better than first reported. Marchfs retail sales number was revised to
show a gain, rather than a decline. February was also revised up.
One of the more eyebrow-raising bits from Aprilfs sales data is that
Americans arenft just spending on staples such as food and gas, theyfre also
buying discretionary items such as clothes and cars and electronics. Internet
sales, for example, jumped 1.4 percent month-over-month in April.
So wherefs the money coming from? Since last April, average hourly earnings
have risen by 1.9 percent, according to Aprilfs
nonfarm payrolls report. Falling gasoline prices have also given consumers
some breathing room. Nationwide gas prices
fell 13 cents during April. But theyfre still about 20 cents higher than
they were in January.
The biggest source of cash seems to be coming from peoplefs savings. At 2.7
percent, the U.S. savings
rate is now lower than itfs been since the recession began in December 2007.
Thatfs a troubling sign that suggests people may be starting to spend beyond
their means again. Though the consumerfs balance sheet is certainly in better
shape this time around, Americans have reduced the amount of money they spend
paying down debt to about 10 percent of personal income, down from a high of 14
percent back in 2007. Rising home values and record-breaking stock prices have
them feeling wealthier, too.
All in all, this is good news for the U.S. economy. Based on Aprilfs
stronger-than-expected retail sales data, the guys at Capital Economics now
think the economy grew at 2.9 percent in the first quarter, instead of 2.5
percent. Neil Dutta, chief U.S. economist at Renaissance Macro Research, wrote
in a note this morning that hefs revised his forecast for second-quarter growth
to 2 percent, up from 1.6 percent. Like it or not, the U.S. economy still lives
and dies based on consumer spending. And thankfully, shopping remains the top
hobby for most Americans.