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Welcome Back Shoppers!

January 26, 2011

Although the Gross Domestic Product figures for the fourth quarter will not be released until Friday, economists are already predicting a solid bump based on personal consumption. According to 27 leading economists, consumer spending in the fourth quarter of 2010 jumped by 4 percent. This would make for six consecutive positive quarters and would mark the highest increase since 2006.

Economists cite a strong holiday shopping season and solid new car sales as reasons for the optimism. Additionally, the Consumer Confidence Index jumped 7.3 points in January (from 53.3 to 60.6, where 1985=100).

Taken together, all this information indicates that the consumer is finally spending again, which will help reverse the downward cycle we have experienced in recent years. As consumers demand more goods and services, employers will have to hire more workers to meet this demand. More hiring leads to more consumption, and the cycle continues.

The depths we experienced in the recession will likely keep the economy from feeling particularly strong for a while. A lot of hiring will have to occur before we can even begin to reach pre-recession levels, but if Friday’s GDP release does in fact include a good consumption figure we can feel confident that the economy is on the way back.

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