More shopping is good news, right? Right?

Retail sales are a strong gauge of the economic recovery, and Christmas shopping points to increased consumer confidence in economic growth. That’s especially true for the sales of high-end designer goods with brand names such as Louis Vuitton, Jimmy Choo and Rolex. From the LA Times:

U.S. retail sales overall are expected to rise about 3.5% this year, but the trend is even stronger at the high end, with a projected 7% jump over 2009.

That’s an encouraging sign for the overall economy because affluent shoppers wield outsized spending power. The richest 20% of households account for nearly 40% of total consumer spending in the U.S., said Michael Niemira, chief economist at the International Council of Shopping Centers.
Their pent-up desire to spend money is being abetted by the stock market rally, a more stable jobs picture for those who are still employed, and expectations that the economy will continue to show steady, if slow, improvement.

Note Added: (Before any of you who defend tax cuts for the rich get too excited about that 20 percent of households, that’s not the same group that the GOP is defending with tax breaks. The richest two percent of households earn over $250,000 a year. The wealthiest 16 percent earn over $75,000 a year.)

In recent weeks, some of the nation’s best-known luxury retailers, including Neiman Marcus, Saks and Nordstrom, have reported a surge in traffic and sales.

But there is a cultural and economic downside to Americans’ love of “retail therapy”: Our economy is too dependent on consumer spending. For the last 20 years or so, as manufacturing has declined, consumer spending has accounted for 70 percent of U.S. economic activity. The U.S. no longer has an economy shaped by building and making; our economy is all about buying the things that other countries make.

Our savings rate is also out-of-whack. While household savings rose a bit during the grim recession, we are still a spendthrift nation, spending the money we should save for college educations and retirement. A higher household savings rate would also lend businesses much needed money for investment.
It’s the classic problem with addiction: A too-quick withdrawal from our spending habits would cast the U.S. economy over the cliff, without any other engines to create jobs. But we can’t continue as a spend-spend-spend economy, as our latest bust shows.

But a southern California shopper summed up the attitude all too common among Americans:

Over at Christian Louboutin, Lefty and Cindy Novotny of Coto de Caza are walking out with a pair of black leather pumps for their daughter. Price: $630.

“People are sick of saving — it’s not fun,” said Cindy Novotny, 54, who co-owns a consulting firm with her husband. “2009 I shopped in my closet, and I said I’m over that.

U.S. savings rate through the years

U.S. savings rate through the years

296 comments Add your comment

HDB

December 15th, 2010
9:06 am

“The U.S. no longer has an economy shaped by building and making; our economy is all about buying the things that other countries make.”

That’s the key to the economy actually recoveering; the US has to start MAKING things…and not offshoring our manufacturing base!!

Bob

December 15th, 2010
9:07 am

I think shopping has an effect on commerce, will Obama tell us what we need to buy or just give us a dollare figure to spend.

Richard

December 15th, 2010
9:11 am

“The U.S. no longer has an economy shaped by building and making; our economy is all about buying the things that other countries make.”

CT, why exactly is that bad? That’s the normal progression for any society that becomes technologically advanced. Also, to become an export nation (like China), we would have to artificially devalue our currency which would remove us from being the alpha dog in the world economy.

Common Sense isn't very Common

December 15th, 2010
9:14 am

As long as consumers buy products made in other countries the US economy will not recover.

The only people benefitting from the current buying are the retailers with their +400% markup on overseas manufactured goods.

These retailers also try to pay the lowest wages possible for their clerks in the stores and the people in the corporate offices excluding the huge bonuses for executives.

Please look for a made in the USA label if it’s not there decide whether to buy something else this holiday season

Ragnar Danneskjöld

December 15th, 2010
9:14 am

Good morning all, and Merry Christmas. The uptick in retail sales is encouraging news, and the contrast to last year is undeniable. In the spirit of the season, I will refrain from making the obvious political-change causation argument, and will simply wish all a fruitful 2011.

Paddy O

December 15th, 2010
9:19 am

No manufacturing? NAFTA!!!!!!!!!!!!. Who signed that bill? Oh,yeah – a Fing Democrat. Clinton is North Korean/China spy, always has been.

SmittyATL

December 15th, 2010
9:20 am

If people are spending money that they can actually afford to spend, that’s a good thing for the economy. I can’t imagine spending $630 on shoes; that’s WAY overindulgent in my book. I’d rather buy $120 shoes and put the other $510 to better use. But I’m sure the shoe store owner appreciates it, and maybe he/she will use part of the proceeds to buy other goods or services, pay off debt, donate to charity, save for college or retirement, or pay taxes.

Obviously, people spending money that they CAN’T afford to spend, while neck-high in debt, is what got us into the foreclosure mess in the first place. (Yes, the bankers also share some responsibility; but they typically don’t hold guns to our heads and force us to take out loans that we might not be able to pay back.)

Our big problem is that our congress acts like the couple buying the $630 shoes — and they certainly fall into the neck-high-in-debt category.

Paddy O

December 15th, 2010
9:21 am

It is called an IMPORT TARIFF! IMpose a per unit tax of one to 1000 dollars, and you will notice domestically produced products (other than planes & cars) increase, increasing jobs. This is the first recession since NAFTA – is a jobless recovery really a recovery?

Finn McCool

December 15th, 2010
9:21 am

The decline begins in 1983, right around the time of Reagan’s initial tax cuts, de-regulation, the first yuppie-dom period. Right when baby-boomers were hitting middle age.

This time also coincides with the markets turning into crap shoots with several black days ahead. 40 years of boring (but conservative and steady) banking went bye-bye.

Paddy O

December 15th, 2010
9:22 am

Our Congress, primarily Democrats, are not earning their money – they get paid a ton to make TOUGH decisions on HOW TO BALANCE THE BUDGET. If they can’t, they should receive minimum wage for essentially mailing in their obligations of the job.

paleo-neo-Carlinist (the artist also known as Joe the Plutocrat)

December 15th, 2010
9:23 am

Richard, you are talking in circles. We are no longer the alpha male in the world economy. And where did you study socio-econimic theory? What we are experiencing is the “normal progression” of a capitalist plutocracy (just as the Soviet Union experienced the to be expected progression of a Marxist plutocracy). Corporate executives took the short money by offshoring manufacturing. You can blame unions if you like, and they do bear some responsibility, but they are part of the plutocracy as well. If you want to invoke the alpha male metaphor, do it accurately. The plutocracy (coporations and the politicians they own) may be the ‘alpha male’ of the US economy, but we’re merely a member of the global econmic pack

Hankie Aron

December 15th, 2010
9:23 am

Nice column CT, a welcome change. Sure spending is much much more fun but splitting a good chunk of your salary into a Roth IRA, a Traditional IRA, and some form of a savings account is a good way to save for the future. Dont’ know if I will get there but I want to retire by age 60.

Finn McCool

December 15th, 2010
9:25 am

Smitty, spending in general should be considered relative. Someone making $500,000 would consider $630 for a pair of shoes commensurate with $60 for a pair of shoes for someone earning $50,000 a year.

Citizen of the World

December 15th, 2010
9:26 am

After 9/11, the rallying cry might as well have been “United We Spend” the way G.W. Bush advised us all to run out and shop to support the economy. Our profligate ways persisted during his entire term, but he was happy for people — and the government — to spend money they didn’t have just to perpetuate the fantasy that we can still afford the American Dream despite our stagnant wages, shrinking manufacturing base, etc.

The American Dream as it is currently defined by so many — shop til you drop, then shop some more — is unsustainable.

I’ve been trying an experiment with myself. I haven’t bought a single item of clothing since August. For one thing, I just don’t really need anything. For another thing, I wanted to see if I could do it. It hasn’t been easy, but my goal is to make it at least until spring. And then I’ll probably shop consignment.

We really do need to shift from a consumer culture to a conservation culture. That should keep money and jobs at home if we would just do things like buy used from each other, eat more sustainably (less meat and buy local), invest more in our education system, make the transition to clean, alternative energy sources, fix our crumbling infrastructure, and build a rapid/mass transportation infrastructure for the 21st century, etc. These are things we need to do anyway.

Road Scholar

December 15th, 2010
9:26 am

RD: Are you OK? Smitten by the Christmas season? I wish more would be the same! Merry Christmas to you and yours!

The upturn in retail is encouraging.I have been observing the same in most restaurants we have visited, although it has dropped very recently, a result of more retail spending for the build up to Christmas Day, I believe.

Joel Edge

December 15th, 2010
9:26 am

Those ba@#$%ds, how dare they spend their own money.
Just kidding. Conservatives have been barking “live within your means” for years, watching the manufacturing base go overseas for about twenty years. Empty promises of hi-tech jobs. We’ve watched politicians shovel our money out to anybody and his brother for no apparent reason. How are those “shovel ready” jobs coming? Time to pay the piper. Sorry.

Hankie Aron

December 15th, 2010
9:27 am

I could care less about $100 shoes, much less a $630 pair. I just can’t stomach all of the excess. It’s wasteful and irresponsible

Finn McCool

December 15th, 2010
9:27 am

Elect Clark Howard president!

Bob

December 15th, 2010
9:30 am

Finn, what did Reagan deregulate ? And Clark Howard would be against Obo care and the current model of Social Security.

Road Scholar

December 15th, 2010
9:32 am

Paddy O: “Our Congress, primarily Democrats, are not earning their money …”

The last time I checked any Congressman and Senator could write and introduce legislation. Why, did Boehmer and McConnell take away their pencils, pens, mouse, and computers? Or weren’t they permitted to think, I mean in the interest of solidarity?

Most people who are “rich” don’t spend $600 on a pair of shoes. They buy them for less and pocket the difference in savings! That’s why they are/stay rich!

StJ

December 15th, 2010
9:36 am

I was going to make the NAFTA/China point, but Paddy beat me to it.

But you can add: repeated refinancing of mortgages not to get a better rate or pay for home improvements – but just to consolidate credit card debt, only to run the cards back up again. But now since we’ve mandated extending mortgages to unworthy people and the ensuing (inevitable) housing collapse, that refinance-plan is now out the window. Now people have to live within their means, which puts a damper on the “recovery”.

But hey, the whole thing is the fault of the wealthy. Ready the troops, it’s time to go confiscate their ill-gotten wealth!

Union

December 15th, 2010
9:48 am

wow.. really folks? the only person to blame is the person looking back at you in the mirror. its about common sense priorities..

Kamchak

December 15th, 2010
9:51 am

Our savings rate is also out-of-whack.

I opened my first pass-book savings account in the late 60s and I was getting 5 – 5 and 3/4% interest rate. Can’t even get that on a 30 year T-note, if you can find one.

Cheap money has fueled this economy since St Ronnie of the Ray-Gun and his neo-classical economistsphlogiston economy alchemists came along with their brand of trickle-on voo-doo doo-doo.

Our hostess speaks of addiction, our addiction to low interest rates has led us to this low savings rate. Personal savings is no longer part of the “balanced ” financial portfolio. Our financial advisers urge us to put our hard earned dollars into equities, bonds, and commodities—all of which assures them of taking a slice of every transaction. Of course they don’t want us to save in the traditional savings accounts.

Wilma

December 15th, 2010
9:57 am

Cynthia,

Surely you don’t beleive that our economy is about buying the goods that others make. Someone, somewhere must add value. That value does not have to be in manufacturing but it must exist for the country to have a high standard of living. Living standards rise when the value creation of the economy rises.
Have you bought the short term importance of consumer demand as a fundemental long term driver of the economy. If you have, then you have left the reality based community.

Union

December 15th, 2010
10:03 am

kam.. and carter was such a blessing.. 13% unemployment.. 18 – 21% mortgage rates.. prime rate through the roof.. yeah.. its easy to criticize.. reagan actually walked into a bigger nightmare than obama.. the biggest difference.. reagan “manned up” my fondest memory was when the air traffic controllers went on strike and said we couldnt do without them.. obama would be having a beer summit or something.. lmao

JKL2

December 15th, 2010
10:04 am

CT- While household savings rose a bit during the grim recession, we are still a spendthrift nation, spending the money we should save for college educations and retirement

I thought we were supposed to be giving it to the government in the form of higher taxes? The only way to get thru this is to spend more money so the government can come bail us out.

quod erat demonstrandum

December 15th, 2010
10:11 am

Why has the people of the US started saving more, spending less and moved away from the ole credit card?

The Obama administration’s spending free for all.

When Government gets reckless, the people save, when the government tightens its belt the people save less.

Looks like a Catch 22

JKL2

December 15th, 2010
10:12 am

Union- air traffic controllers went on strike and said we couldnt do without them.

Did you see a couple weeks ago where we now have over 4k air traffic controllers making over $150k a year? I think it’s time for another purge.

quod erat demonstrandum

December 15th, 2010
10:13 am

JKL2,

In the current administration. those expenses will be paid by the government, we don’t need to save for College or Retirement.

Or at least that is what the progressives would have you believe.

Kamchak

December 15th, 2010
10:15 am

…and carter was such a blessing.. 13% unemployment.. 18 – 21% mortgage rates.. prime rate through the roof..

The FOMC sets interest rates, not the president.

Geez….

quod erat demonstrandum

December 15th, 2010
10:19 am

In recent years, those of us with thinking power left over, started taking advantage of the government inspired saving plans.

IRA’s, 401k’s and Roth’s. These all came out of the tax code and are not counted in the US Saving rate as described by the Progressive in charge of this blog.

Poor Boy from Alabama

December 15th, 2010
10:21 am

Increased consumer shopping is an indication that we are in the midst of a gradual economic recovery. The latest Business Roundtable CEO Economic Outlook Survey confirms this:

businessroundtable.org/news-center/business-roundtable-releases-fourth-quarter-2010-ceo-economic-outlook-surve/

Published: December 14, 2010

The CEOs of America’s leading companies plan increases in employment, sales and capital expenditures over the next six months – according to the results of Business Roundtable’s fourth quarter 2010 CEO Economic Outlook Survey.

“Demand is returning as evidenced by anticipated sales increases, and that is good news. When demand increases, capital expenditures and employment follow – which is what we expect to see in the next six months,” said Ivan G. Seidenberg, Chairman of Business Roundtable and Chairman and CEO of Verizon Communications. “However, our CEOs expect GDP to grow at rate of only 2.5 percent in 2011, so there is still more work that needs to be done to get the economy back on the path toward strong, sustainable growth.”

Similar results have come from a new CFO Magazine survey.

So yes, more shopping is a good thing in the short term.

Rebuilding the US manufacturing sector is a long term problem that cannot be solved quickly. That topic would make for a very nice blog post.

Rafe Hollister

December 15th, 2010
10:21 am

“People are sick of saving — it’s not fun,” said Cindy Novotny, 54, who co-owns a consulting firm with her husband. “2009 I shopped in my closet, and I said I’m over that.

That just about sums up why so many of us, who save our money, invest, and live for the future and our childrens future, have so little symmpathy for those, who mimic this idiot, and find themselves in bad straits.

Union

December 15th, 2010
10:21 am

kam.. here is what it boils down too.. regardless of how ppl think they feel.. they want a leader in charge.. carter was no leader.. neither is obama.. both have good hearts and great ideas.. but they couldnt lead a troop of girl scouts..

i know who sets what.. thats not the issue.. business is not hiring and spending right now because of the uncertainty with internal us policies.. healthcare.. taxes.. etc. the problem as i see it.. (imho) is that obama sends the wrong message to companies.. who does he bring in as in leadership council for creating jobs? not business leaders.. but union leaders..

jkl2.. thats close to the avg pay for a fed employee..

Nothing Is Free

December 15th, 2010
10:22 am

When liberals start to understand that we have to take care of our corporations and we need to give new corporations incentives to stay here and develop manufacturing here, their silly complaints about employment will start to have some credibility.

Democrats: Corporations, we HATE you. Corporations are evil. Corporations need to pay higher taxes. Corporations need to be controlled by the corrupt unions, we hate you, we hate you we hate you . . . where are you going?

Big Dog 98

December 15th, 2010
10:24 am

You forgot to blame all of this on the Republicans.

Kamchak

December 15th, 2010
10:27 am

i know who sets what..

Then why the lame attempt to tie Carter to high interest rates?

…business is not hiring and spending right now because of the uncertainty…

The “uncertainty” card?

Puh-leeze.

The business climate is always uncertain, yet they all make decisions in an “uncertain” business climate.

Nothing Is Free

December 15th, 2010
10:30 am

Kammy

Puh-leeze educate yourself. Every news outlet in the country has said that uncertainty in the business community has been a major problem in the recovery of the economy.

Keep up the good fight!

December 15th, 2010
10:30 am

Hmmm…Moody’s now says that interest rate may go up on US borrowing because of the tax cut deal that the Republicans have forced…. America’s credit card will soon be canceled. That will certainly help drive corporations out of the country. But if you don’t swallow everything the neocon wingnuts spout, why that is just silly, silly, silly.

Kamchak

December 15th, 2010
10:33 am

Every news outlet in the country has said that uncertainty in the business community has been a major problem in the recovery of the economy.

There’s your sign.

killerj

December 15th, 2010
10:34 am

When you don,t have a house to pay for, have fun!

Richard

December 15th, 2010
10:38 am

paleo-neo-Carlinist,

By alpha dog, I’m referring to the fact that over half of world wide currency exchanges involve US Dollars. The demand for our currency is so high it allows us to do things like print money to pay for the Iraq War.

Common Sense isn't very Common

December 15th, 2010
10:39 am

Union@10:03 am

I don’t know your age, but in 1979 I bought my first house. FHA financed at 10% with 10% down.

Interest rates on other type loans I do not know what they were. I just know under Reagan interest was no longer deductable on tax returns (other than mortgage (other interest deductions were phased out over several years)).

That almost killed the automotive industry and many other industries since the interest on purchases was not longer deductable.

C from Marietta

December 15th, 2010
10:39 am

It’s the evil Republicans. They have enslaved us all and poisoned our drinking water. As well as, worshipping money and rich dudes. What else did I miss?

Keep up the good fight!

December 15th, 2010
10:42 am

Remember just before the election with neonuts professed how there were corporations just waiting to hire and invest if the Republicans won…..In fact, I recall one blog nut professing that point several times. He had just come back from a meeting and claimed this to be the absolute truth…nothing for that promise I guess.

Neocons whine about “spending what you dont have” while at the same time setting the government on the same course and cutting income to have even less to pay for the spending.

More egg nog?

C from Marietta

December 15th, 2010
10:43 am

It boils down to this…

1) Do you want higher wages ? OR 2) Higher taxes for Corportations ?

You can’t have both. Somethings got to give.

Nothing Is Free

December 15th, 2010
10:44 am

And he answers with

“There’s your sign”

So how long before he starts to whine about how no one respects his opinion.

Nothing Is Free

December 15th, 2010
10:46 am

Keep up

I have landed three new contracts since the elections.

So are you man enough to apologize?

I think we all know the answer to that one.

Equality 7-2521

December 15th, 2010
10:48 am

What a bi-polar group we have.

You want people to spend.

You want people to save.

Government does not like it when consumers save. It’s one of the reasons not mentioned that the Fed is keeping interest rates so low. And if they could enact negative rates to penalize you for doing so, they would.

dougmo2

December 15th, 2010
10:49 am

CT, how about the judge deciding that Obozocare is unconstitutional.