Signs of tough times linger
US consumers are spending, but with caution, and a focus on relieving debt
Now that Christmas is over, will people keep spending?
Not for a while, say economists and consumer analysts. While surveys reveal that many consumers feel the worst of the economic crisis is over, that does not mean they expect things to get wildly better anytime soon. And that translates into cautious spending well into the middle of 2010, as well as a renewed focus on reducing debt and building savings.
Take Tom Moses, 54, a technician for Verizon Communications who survived layoffs because of union protections for longtime workers. While the Rockport resident said he feels lucky, he worries about his 26-year-old daughter, who was laid off from a part-time retail job. His wife works for an agency that relies on state grants, which may be affected by shrinking tax revenues. “The situation’s not good,’’ he said. “Everybody’s in jeopardy.’’
That makes Moses wary of opening his wallet. Unless a purchase is absolutely essential such as, say, the repair of a furnace, he is going to hold off for a while. “A new car? I don’t think I’d do that right now,’’ he said.
Such tight-fisted attitudes portend a slow recovery because consumer spending drives about 70 percent of the US economy. This month’s consumer market forecast from IHS Global Insight, a Lexington research firm, projects a much more gradual increase in consumer spending than is typical of economic expansions because of weak growth in disposable income.
The firm anticipates a relatively small increase - about 1.8 percent - in consumer spending in 2010. But most of that is going to come in the second half of the year, after job growth resumes, according to Sara Johnson, managing director of global macroeconomics at IHS Global Insight. To put that fairly modest increase in perspective, consumer spending grew at 3.5 percent a year in the middle of the decade, said Johnson.
“The reason it’s a modest increase is that employment has not yet started to rise,’’ she said. “We expect it will by the spring.’’
Despite a slight increase in November, “The current levels of consumer confidence are very, very weak,’’ said Lynn Franco, director of the consumer research center at the Conference Board, a New York business advisory group. The Conference Board’s consumer confidence index rose to 49.5, up from 48.7 in October. The group releases its next update in late December, but, even if it shows an unprecedented double-digit increase, the index will still be at weak levels, Franco said.
“Even if consumer confidence improves in 2010, we expect consumers’ ability to spend to remain restricted,’’ she said. “We expect consumers to remain budget-conscious.’’
That’s because job security still weighs heavily on consumers’ minds, said Ross Gittell, a University of New Hampshire professor and forecast manager for the New England Economic Partnership, which expects a “slow and weak recovery’’ in the region.
Even if consumers felt confident that things were going to significantly improve, most lack the means to spend aggressively, Gittell said. The drop in housing values in many areas means homeowners cannot borrow against their property to raise cash, as they did for most of the past decade. And tighter credit means they can’t use plastic as easily, either.
A recent study conducted by the National Foundation for Credit Counseling found that consumers are eager to pay down debt. The online survey asked consumers what they would do with extra $500, and of the roughly 8,500 people who responded, 77 percent said they would use the money to pay down debt rather than buy holiday gifts.
That suggests consumers’ desire to avoid debt will also curb their spending, said Gail Cunningham, spokeswoman for the Silver Spring, Md., foundation, which accredits consumer debt counseling agencies nationally.
“When things are going well, we tend to put our finances on autopilot,’’ Cunningham said. “Now that the party’s over, those who went to the party are experiencing a hangover and are trying to rectify the situation.’’
Lydia Gregg, for one, plans to stick to her diet of frugality. This year the Boston mother brought her lunch to work, used more coupons, and abandoned her credit card.
“The recession really changed the way I spend, and I pay attention to everything now,’’ Gregg said as she bargain hunted for gifts at a Sears earlier this week.
“If I don’t have the cash, I probably don’t need it,’’ she said. “That’s what I learned this year, and I believe that lesson will stay with me forever.’’
Jenn Abelson of the Globe staff contributed to this report. 
