Consumer Spending, Confidence Increase

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This may not have been the “Recovery Summer” that the Obama administration had hoped for, but new government reports show the season did end on a positive note.

The Commerce Department announced Tuesday that retail sales increased by 0.4% in August, the largest increase in five months, after having increased by 0.3% the month before.

“An increase in retail sales in both July and August is encouraging and suggests that the economic recovery continues,” Commerce Secretary Gary Locke said in a press release.  “While these data show that consumers are spending, the administration recognizes that Americans are still struggling.”

Retail sales last month were 0.3% higher in August of this year than they were in 2009.

In fact, as several publications have noted, much of this increase in consumer spending can be attributed to back-to-school purchases. Yet even with that in mind, retail sales increased by more than economists had expected.

On top of this, a separate report from Investor’s Business Daily and TechnoMetrica Market Intelligence found that consumer confidence is also on the rise, increasing by 3.9% in September from the previous month.

Taken together, the rise in confidence and spending offer a modest indication that consumers are feeling better about the economy and their own personal finances. Moreover, as Fox Business declared in a recent article, these data points also may ease concerns that this country is on the verge of diving into another recession.

That said, there is still some doubt about whether consumers are really ready to spend big again.

One UCLA report from earlier this summer predicted that the economic recovery would be slow going as consumers will likely continue to be cautious with their money in order to settle their debts.

To make matters more complicated, a CardHub study released this week found that consumer credit card debt actually increased this year. Rather than pay down their debts, consumers are letting their bills sit unpaid longer, forcing creditors to process charge-offs in record numbers.

So while consumer spending may increase in the coming months and provide a much needed boost for the economy as a whole, the question now is whether consumers are spending too much too soon.

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