As people pack into the mall this weekend with hordes of other shoppers, think of it as an act of economic patriotism.
With shopping bags full of holiday gifts, you’ll once again be playing a central role in the U.S. economy.
After retrenching in the early days of the recovery, consumers are reasserting themselves as the key driver of U.S. economic growth. And that’s coming at an opportune time, given that other economic propellants such as manufacturing and exports have slowed.
“The consumer is allowing the economy to hang in there,” said Brian Wesbury, chief economist at First Trust Advisors in Wheaton, Ill.
Consumer spending accounts for about 70 percent of economic activity, and the holiday season constitutes as much as 40 percent of annual retail sales.
Chastened Americans went into a rare defensive crouch following the recession and housing bubble, slashing their spending on all sorts of items.
Businesses picked up some of the slack. But that tide is weakening as business activity slows amid dull global growth and gridlocked budget talks in Washington.
Consumers are filling the void.
Their willingness to spend has been bolstered by improvement in the job and housing markets. Retail activity helped the economy muster a 2 percent annual growth rate in the third quarter. That’s far from exuberant, but it would have been worse otherwise, experts say.
And with corporate executives fixated on the “fiscal cliff” drama over potential tax increases and spending cuts, a robust holiday shopping season could provide a crucial economic counterbalance.
“Exports are down. Business investment is down,” Wesbury said. “But the consumer was strong in the third quarter. The consumer was the reason the economy expanded.”
The Conference Board, a business research group, said early this month that Americans’ confidence in the economy reached its highest level in nearly five years in October. Many were encouraged by an improving labor market, the group said.
Holiday spending is forecast to rise 4.1 percent to $586.1 billion, according to the National Retail Federation. That’s slightly below the 5.6 percent gain retailers enjoyed last year.
Much of the improvement is coming from high-end shoppers shelling out on luxury items, said Brian Sozzi, chief equities analyst at Nothing But Gold Productions. The middle class remains hesitant.
“The middle-income consumer is not willing to trade up,” Sozzi said. “They’re still not willing to go out and buy that $500 handbag on their credit card.”
And as Black Friday demonstrates, everyone’s after a bargain.
Consumer spending is “not hurting but by no means is this a consumer-spending recovery,” said Chris Christopher, an economist at IHS Global Insight.
Other experts are more upbeat. After whittling down their debts in the past few years, consumers are more willing to open their wallets, optimists say.
Wesbury pays close attention to discretionary income — the amount of money consumers have left after paying regular monthly expenses such as rent, debt payments or property taxes.
By one measure, discretionary income is the best it’s been since 1984.
“Consumers are in a lot better financial shape than a lot of people believe,” Wesbury said.