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March 01, 2010

US Consumer Spending Up Slightly Amid Weak Recovery

by Mil Arcega

The U.S. Commerce Department says consumer spending rose more than expected in January, up half a percent.  Analysts say it's another indication that the U.S. economy is on track to climb out of the worst recession since the 1930s. But while consumer spending drives about 70 percent of the U.S. economy, economists say other factors are making the recovery more difficult.

The U.S. economy grew at a faster than expected rate at the end of 2009, up nearly six percent in the last three months of the year.  But a little more than two months into 2010, some analysts say the U.S. recovery is losing steam.

Although consumer spending improved slightly in January, economist Diane Swonk says housing sales remained anemic. "The housing market has recovered from the exceedingly low levels that we saw hit during the worst of the recession.  That said, we're still not going anywhere fast," she said.

Despite an $8,000 tax incentive for first time home buyers, sales of existing homes have declined two months in a row.  

Some say record snowfalls may have kept homebuyers away.  

But with prices still falling, realtors predict an improvement for March and April. "You're not going to get more affordable than it is right now, with the combination of interest rates and the home prices.  It's a really good time," said Gary Keller of Keller Williams Realty.

Although manufacturing numbers, which reflect demand, expanded again in February, some economists say recovery will not be as rapid as in previous downturns. "I think consumer spending numbers are reflective of the job numbers, which continue to be weak," said John Silvia, chief economist at Wells Fargo bank.

The pace of job losses has declined dramatically in the last year, but nearly 15 million Americans are still out of work.  
Silvia expects the situation to improve soon. "I would suspect that the jobs numbers would turn positive by the second quarter of this year, so probably another two or three months out we'll get some positive jobs numbers," he said.

Americans should get a better idea of where the economy is headed on Friday, when the Labor Department releases its closely-watched monthly jobs report.