Spending at holidays predicted to be strong

Americans are upbeat about the economy heading into the holiday shopping season. But that good cheer may not last long.

With the lowest unemployment rate in nearly half a century, and wage growth starting to pick up, economists expect shoppers to open their wallets. A survey by the National Retail Federation, a trade group, points to 4.1 percent more holiday spending than last year, and some forecasters expect even stronger growth. Measures of consumer confidence are near post-recession highs.

“You see momentum going into the season, cutting across a large range of categories,” said Stephen Sadove, a former Saks Fifth Avenue chief who is now a senior adviser for Mastercard. “It’s probably the healthiest growth we’ve seen in the past half-dozen years.”

But those projections predate the latest round of stock market declines, which this week pushed the S&P 500 index into negative territory for the year.

It’s too soon to say whether the drop will rattle consumers. But even before the selloff, many economists were warning that a combination of factors — including rising interest rates, a weakening housing market and a new round of tariffs set to take effect in January — could begin to slow down the economy in 2019.

Consumers are feeling good

Last year’s holiday season was the best for retailers in more than a decade. Americans are feeling even better this year.

Thirty-seven percent of Americans say their finances are in better shape than they were a year ago, while 17 percent say they are worse off, according to a survey conducted for The New York Times in early November by the online research platform SurveyMonkey. Last November, just 28 percent said they were better off.

Consumers say they are feeling even more positive about the future. Forty-one percent expect to be better off financially a year from now — versus just 14 percent who expect to be worse off — and a majority of survey respondents said “continuous good times economically” were in store over the next five years.

Other surveys show similar optimism. The University of Michigan on Wednesday reported that consumer sentiment had ticked down slightly in November but that the index remained high by historical standards.

That confidence is leading consumers to loosen their purse strings, said Diane Swonk, an economist for accounting firm Grant Thornton. She noted that spending was up in discretionary categories such as restaurant meals, travel and clothing.

“Consumers are dressing up and stepping out a bit,” Swonk said. “They’ve got money for discretionary spending, they’re traveling a lot.”

Low gasoline prices may provide dividend

Consumers have plenty of reasons for feeling good. Economic growth is on track for its best annual performance since 2005. And crucially, the tight labor market at last appears to be translating into faster wage growth for workers. Average hourly earnings were up 3.1 percent in October from a year earlier, their fastest growth since before the recession.

Households are also getting help from gasoline prices, which have fallen sharply in the past month after rising earlier in the year.

“If gas prices go down, it basically acts like a tax cut,” said Joseph Song, an economist for Bank of America Merrill Lynch.

Then there is the actual tax cut. The $1.5 trillion tax law that Republicans passed last year helped pump up consumer spending earlier this year, and economists said the effect is lingering into this holiday season. Overall, households’ finances are in their strongest shape in years, with low levels of debt and rising after-tax income.

AP FILE Before this week’s stock market decline, consumer confidence was high. But analysts believe heavy spending will continue through the holiday season.