Consumers set to resume spending?

05.11.09
By Lewis Green

A number of economic indicators suggest that consumers are remaining conservative with their spending habits and keeping credit cards tucked away in their wallets.

In fact, data last week from the Federal Reserve showed that consumer borrowing had eased and with more families trying to reduce their outstanding credit card debt, using plastic to make purchases was being curtailed.

And on Friday, the government released new national employment figures that showed another 539,000 jobs were lost according to the nonfarm payroll tracked by the Department of Labor.

This pushed the overall unemployment rate up to 8.9 percent in April from the previous month's 8.5 percent.

Despite this news, consumers appear to be feeling more positive about the economy and job security.

The Royal Bank of Canada tracks monthly consumer attitudes about savings, personal finance situations and overall confidence on the economy and investing. This month's reading of its RBC Consumer Attitudes and Spending by Household Index for U.S. consumers gained ground on April's figure, reaching 43.0 - up from 38.3 in April and a dire 1.6 in February.

Why the sudden change in sentiment?

RBC Capital Markets managing director Larry Miller says it stems largely from an improved confidence in job security. The sub-index on jobs showed improvement as well, with fewer people worried about a friend or family member losing their job in the near term.

But will all this positive thinking lead to more spending?

Maybe, said Miller, noting that a pick-up in spending could help drive economic recovery.

With so many families worried about making their next home loan payment and staying current on credit card bills, it may be some time before spending levels inch toward records set during boom economic times.

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