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Opinion: Economy: Nervous consumers still gearing up to spend

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Increasing consumer spending is crucial to accelerating the U.S. economy, and the survey data released Monday by Consumer Reports offered a glimmer of hope on that front. A weak one, perhaps, but a glimmer nonetheless.

Purchases hit a two-year low, dragged down by significant drops in major home appliances and home electronics. Looking forward, however, the survey also found the highest intention to spend since last December. In fact, it was the first time in at least 2 1/2 years that respondents said they planned to spend more in the coming month than they’d spent in the previous month.

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The Consumer Reports National Research Center has been checking consumers’ attitudes every month since the height of the recession. At the end of October it asked 1,019 randomly selected people a series of questions aimed at gauging their sense of financial progress, their spending, their employment and their sources of financial stress.

The results have shown more volatility than the stock market. For example, the employment index, which compares the number of people who say they lost a job in the last 30 days to the number who say they found one, rose slowly from December to May, dropped back into negative territory in August, then posted small gains again in October and November.

‘We’re seeing a gradual improvement,’ said Ed Farrell, director of the research center. ‘This is not recovery by any means.... We’re nowhere near the numbers we need to get the millions and millions of folks back to work.’

The survey’s retail index, which gauges recent and planned purchases, has predictably risen as the Christmas season approached, then dropped sharply in the new year. This year’s levels had generally been higher than last year’s, but this month’s score -- which reflects purchases in October -- was down sharply from last month and a year ago.

That might be cause for alarm if not for the aforementioned high reading for purchase intentions. Leading the way are personal electronics and major home electronics, which Farrell described as ‘the big holiday items.’

Still, there’s reason not to be too optimistic. The consumer sentiment index, which measures whether people feel better off than they did a year ago, has been slumping the last two months. Lower-income households (those earning less than $50,000 a year) have been pessimistic since the recession began, Farrell said; the troubling new trend is that sentiment in upper-income households (those earning more than $100,000) is heading south.

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On balance, more upper-income households are still reporting that they feel better off than they did a year ago. But the margin is considerably slimmer than it was in January, Farrell said.

Before you say ‘Cry me a river,’ consider that a household income of $100,000 does not a fat cat make. More important, spending by that group has been vital to what little growth the economy has mustered since the recession ended. ‘When their sentiment starts to collapse,’ Farrell warned, ‘that really has a major impact on retail.’

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-- Jon Healey

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