Consumers are coming out of their shells and heading to the
mall. What will keep shoppers spending for the rest of the year are much
healthier labor markets, according to economists surveyed by The Wall Street
Journal. An upbeat consumer outlook was the consensus forecast of 66
economists, not all of whom answered every question. The average forecast sees
inflation-adjusted household spending climbing 2.7% this quarter and more than
3% in the third and fourth quarters, much better than the 1.8% gain over the
winter.
An early sign of the consumer rebound came Thursday with
news that retail sales jumped 1.2% in May. Excluding autos, the gain was a
solid 1%. Of course, consumers have been fickle throughout the six-year-long
economic expansion. They have spent strongly in one quarter only to retrench
soon after. But the forecasters think a high level of spending will be
sustained this year because labor markets are strengthening. According to the
average forecast, payrolls should increase at a monthly pace of 221,000 for the
rest of the year, a notch above the 217,000 averaged in the first five months.
The jobless rate is projected to fall to 5.1% by December from 5.5% in May.
Young adults are now moving out on their own and newly
formed households spend more on appliances, furniture and services than
established ones do. Another plus for the consumer outlook is still-low energy
prices. Consumers mainly have chosen to pocket their savings at the pump.
When asked why consumers were being thrifty, 46% of economists
thought the focus on savings was temporary, and most thought the gas savings
would be spent eventually. The financial cushion is not a bad thing, said Allen
Sinai of Decision Economics, because the money being saved now will
support spending in the future.
A return of the consumer would power overall economic
output. On average, the forecasters think inflation-adjusted gross domestic
product is expanding at a 2.6% annual rate in the second quarter and then will
grow just over 3% in the second half. The economy contracted 0.7% in the first
quarter according to the most recent estimate, a drop that reflected shipping
problems related to the West coast port slowdown and harsh weather. With the
economy revving up, the majority of forecasters think the Federal Reserve will
make its first interest-rate increase in September.
International risks continue to be the biggest worry about
the future, according to the economists. The list of potential headaches
include the global economy slowing further, a geopolitical or terrorism event,
and a stronger dollar hurting U.S. export sales.
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