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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Confidence among consumers fell in April to a three-month low as Americans grew more pessimistic about the outlook for the economy.
Bloomberg reported that the Thomson Reuters/University of Michigan final index of consumer sentiment declined less than forecast, to 76.4 from 78.6 a month earlier. The median projection in a Bloomberg survey was 73.5 after a preliminary April reading of 72.3.
The figures indicate consumer spending may cool after climbing in the first quarter by the most since the end of 2010 and slow the pace of economic growth. Safeway Inc. is among companies noting that shoppers, faced with higher payroll taxes and limited job growth, remain cost-conscious even as rebounding home prices help stabilize household wealth.
“We are seeing slightly softer growth but on the other hand household wealth looks pretty good,” Gus Faucher, senior economist at PNC Financial Services Group in Pittsburgh, said before the report. “The economy is continuing to expand but we do have some drags.”
Another report today from the Commerce Department showed the economy expanded in the first quarter at a 2.5 percent annualized rate, up from the 0.4 percent pace in the final three months of 2012. Household purchases, which account for about 70 percent of the economy, advanced at a 3.2 percent annualized rate, the most since the fourth quarter of 2010.
Forecasts for consumer sentiment in the Bloomberg survey ranged from 70 to 80. The index averaged 64.2 during the recession that ended in June 2009 and 89 in the five years prior to the 18-month slump.
Confidence among U.S. consumers unexpectedly jumped in October to the highest level since before the recession began five years ago, raising the odds that retailers will see sales improve.
The Thomson Reuters/University of Michigan preliminary October consumer sentiment index increased to 83.1, the highest level since September 2007, from 78.3 the prior month. The gauge was projected to fall to 78, according to the median forecast of 71 economists surveyed by Bloomberg News.
Rising stock and property values along with falling joblessness may keep giving Americans a psychological boost, brightening the household-spending outlook during the year-end holidays. Improving confidence may play a role in next month’s election as Republican challenger Mitt Romney tries to make a case for unseating President Barack Obama, a Democrat.
“It’s a combination of rising home prices and higher equities,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, whose forecast was the highest in the Bloomberg survey. “Consumers have, all things considered, been spending reasonably well.”
Estimates ranged from 75 to 81, according to the Bloomberg survey. The index averaged 64.2 during the last recession and 89 in the five years leading up to the 18-month economic slump that began in December 2007.