Friday, April 23, 2010

What Is Fueling the Consumer? [wells fargo]

While the overall economic recovery has been mixed, the recent resilience of the consumer and the rebound in real retail sales growth the last few months has been stronger than expected. With unemployment still near 10 percent, foreclosures still rampant, credit still extremely tight and real wages stagnant, what is driving this improvement in consumer spending?

A number of factors combined to bolster consumer spending, even as the broader economy continues to struggle. The housing market is stabilizing as prices, starts and sales rebounded, thanks primarily to the homebuyer tax credit. It remains to be seen whether or not the recovery in residential real estate will continue after the rebate expires in June. The stock market has rallied roughly 70 percent since the March 2009 lows, lifting the wealth effect. While the unemployment rate remains high, there are early signs that the labor market may finally be entering the early stages of recovery. We are a long way from the kind of payroll growth that would generally be associated with robust income growth and increased consumer spending, but it is a relative improvement from where we were a year ago.  Individual tax refunds are running ahead of year-ago levels, which is padding consumer's wallets. Finally, statistics aside, perhaps after a long winter, warmer weather is drawing consumers out of the house and into the stores. [wells fargo]     

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