Report: U.S. Consumers on a Spending Spree

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May 20, 2013 by   Comments Off on Report: U.S. Consumers on a Spending Spree

American consumers have denied themselves so much for so long — putting off buying homes, cars and other purchases — that their pent-up demand is poised to kick-start a sluggish economy.

As reported by USA Today, four years into the recovery, stronger job growth, some loosening in bank lending and more stable household finances are finally paving the way for many Americans to move into their own homes, fill them with furniture and trade in creaky 10-year-old cars.

Last week, a measure of consumer sentiment showed buying attitudes toward appliances and other durable goods at the highest level since mid-2007. And the government reported that April retail sales solidly beat estimates despite huge federal spending cuts — a development that UBS economist Maury Harris partly attributed to an unleashing of pent-up demand.

Harris estimates that over the next five years, Americans’ catch-up consumption will boost annual consumer spending growth by a percentage point and increase economic growth by half a point to more than 3% from about 2%.

“People have put things off,” says IHS economist Chris Christopher. Now, he says, they’re “feeling a little better.”

In the aftermath of the housing crash and recession, annual household formation was halved to 500,000 in 2008 and 2009 as Americans moved in with relatives and friends. Young adults aged 18 to 34 accounted for most of the drop, many of whom were unemployed, according to the Cleveland Federal Reserve Bank.

As a result, there were 2.3 million fewer households last year than there should have been based on population growth, Harris estimates. He expects those deferred households to sprout over the next five years — based on the recovery from the early 1980s recession — increasing household formation by 465,000 annually.

Housing starts, in turn, are expected to rise from 780,000 in 2012 to 990,000 this year and 1.2 million in 2014, Standard & Poor’s predicts.

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