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Consumer Spending Up First Time Since ’07?

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October 29, 2010 by   Leave a Comment

Consumers are buying more luxury items but spending remains tight for everyday essentials such as food and dental care, a USA TODAY analysis finds, suggesting a growing divide between haves and have-nots.

Purchases of TVs, jewelry, recreational vehicles and pet supplies are growing robustly, government data show. At the same time, spending on medical care, day care and education is down in the dumps.

“The rising tide isn’t lifting all boats,” says Carl Steidtmann, chief economist at the Deloitte accounting and consulting firm and author of an index tracking consumer spending.

He says higher-income and older households, helped by a strong stock market, are experiencing increased wealth and spending more. However, high unemployment is pulling in the other direction, depressing spending among people without jobs and those anxious about job security.

Consumer spending accounts for about 70% of the nation’s economy and is crucial to any recovery. Spending rose 1.4% in the first eight months of this year compared with the same period a year earlier, the Bureau of Economic Analysis reports. Consumers are on track to increase spending for the first time since 2007.

Yet more than one-third of the 350 spending categories tracked by the government remain in decline, as if the recession that technically ended in June 2009 was still underway. Spending on new cars has fallen another 8.2% this year, on top of disastrous drops in 2008 and 2009. Consumers are spending less on prescription drugs, life insurance and a wide range of everyday essentials while spending more on watches, wine and toys. Part of the jump in luxury items is a rebound from deep lows in the recession. What’s hot now:

  • Televisions. Spending is up 34.7% this year, tops among consumer items. “There is a lot of excitement” because of 3-D TVs, bigger panels and high definition, says Best Buy’s Scott Morris.
  • Recreational vehicles. Winnebago Industries Inc. sales have doubled. The company added 350 workers. Buyers — typically 55 or older — are purchasing somewhat less expensive RVs, says Winnebago spokeswoman Sheila Davis.
  • Pet supplies. Organic dog food, timed cat food dispensers and other high-end pet items are driving healthy increases in spending, says Bob Vetere, president of the American Pet Products Association. “People are cutting back on themselves more than they’re cutting back on pets,” he says.

Pet products illustrate how some consumers are going high end and others low end. Cheap pet food is selling briskly, reflecting the weak economy, at the same time costly items are thriving, he says. It’s the middle of the market that’s shrinking, he says.

Entertainment that depends on mass appeal is still hurting. Spending at concerts, movie theaters and casinos is down.

The revenue decline at casinos is starting to stabilize, says Frank Fahrenkopf Jr., president of the American Gaming Association. “We’re not going to see a dramatic turnaround until employment picks up,” he says. “We’re still packing people in. They’re just spending less.”

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