The hardy consumer has kept the U.S. economy chugging along throughout the long, fitful recovery that has followed the recession. Shrugging off everything from tepid pay hikes, to political warfare in Washington, to economic convulsions in Europe and Asia, Americans have kept the economy trudging forward by continuing to spend.
That's fortuitous now given other key economic drivers, including manufacturing, exports, and spending by business and government -- are stalled. But the anticipated shopping splurge afforded by falling unemployment and cheaper gasoline prices has largely not materialized, clouding the outlook for holiday shopping and beyond.
The upshot, in an economy where consumers account for roughly two-thirds of economic activity: If their spending slows, the recovery could be over.
"Consumer spending remains the strongest driver and the most outsized driver, especially given where the other three are -- the government may be on and off with sequestration, business spending post recovery has really cut back and exports are facing stronger head winds with the stronger dollar," said Jim Russell, vice president and portfolio manager at Bahl & Gaynor Investment Counsel. "That really leaves the consumer."
By most accounts, that consumer remains wary, with a survey released Tuesday by Bankrate.com finding that 62 percent of Americans are limiting their spending. Although the job market has improved, housing prices are rebounding and households carry less debt than during the depths of the housing crash, people's willingness -- and ability -- to consume is not what it once was.
"It explains the slow-growth economy," said Greg McBride, Bankrate's chief financial analyst. "People are not in a position to ramp up spending. The top reason continues to be stagnant income; the second remains the need to save more money."
Most forecasters expect gross domestic product -- the total value of goods and services -- of no more than about 2 percent for the third quarter, with growth estimated to land around 2.5 percent for the year.
Further illustrating the cautious consumer, data Wednesday from the Commerce Department had retail sales up a disappointing 0.1 percent in September, after holding flat the prior month. Excluding autos, retail sales fell 0.3 percent last month. Sales at gas stations declined 3.2 percent, reflecting lower prices at the pump.
"Retail sales remain mediocre outside of credit-driven autos and bars/restaurants," Peter Boockvar, chief market analyst at the Lindsey Group, said in a note. "It remains still apparent that the savings from lower gas station bills is either being saved, spent on more gasoline, used to pay down debt, and/or is covering ever rising health care costs, rent and student loan bills."
Not all, however, had a bleak take on the figures. Excluding gasoline station sales from the total leaves a monthly increase of 0.4 percent, and a year-over-year gain of 4.9 percent, noted Mark Pender, chief economist at Econoday, who said:"Lower gasoline prices are giving all of us more spending power."
And, the fact that auto and restaurant sales are strong "shows people have more confidence -- they are buying cars and going out to dinner, that shows you that the consumer is probably more confident in their job," said Pender.
Low inflation and borrowing costs, along with the windfall of cheaper energy, had analysts anticipating increased spending at malls and other retailers. But other than purchasing homes and vehicles -- two areas where low interest and financing rates come heavily into play -- Americans have been constrained in their spending, opting to pay down debt and save instead.
"We are seeing continued strength in two areas: housing and in autos -- both continue to exceed expectations," said Russell. "But there is concern in everyday retail categories. Away from Amazon, department stores and others are having to use price in order to move goods. We're wondering if that carries into the all-important holiday season."
The notably bullish National Retail Federation last week projected holiday sales, excluding autos, gas and restaurants, to increase 3.7 percent to $630.5 billion, a figure that would be markedly higher than the 10-year average of 2.5 percent. The trade group forecasts that sales in November and December will make up approximately 19 percent of the retail industry's annual sales.
"While economic indicators have improved in several areas, Americans remain somewhat torn between their desire and their ability to spend," NRF President and CEO Matthew Shay said in a statement. "Consumers still have the weight of the economy on their minds. We expect families to spend prudently and deliberately, though still less constrained than what we saw even two years ago."
A red flag ahead of the critical holiday-shopping season is the poor showing this year in back-to-school sales, the second-largest shopping period of the year, with consumers waiting until the last minute to get the best deals.
"It was extremely disappointing for a lot of retailers. The consumer appears to be poised to contribute more, but there seems to be reasons why that is not happening," said Russell. "The consumer is holding back, and we don't understand what the catalyst might be for a higher level of spending."
There is reason for some optimism in looking at one important catalyst for consumer spending: labor costs. The employment cost index, a quarterly series closely watched by the Federal Reserve, was up 2 percent for the 12-month period ending June 30.
"We are seeing, finally, some signs of growth in household income. It's been slow, it's been tentative, but signs are materializing," McBride said. "That's an area where the horizon is much brighter than the past few years. If we continue to see improvement, that could be an accelerant to the economy and the consumer."
The focus on consumer spending is intensified as a stronger dollar and slowing global growth put a lid on U.S. exports, weakening manufacturing activity and business spending, with low energy prices denting capital expenditures across the industrial sector, as companies cut back on drilling and exploration.
"The consumer remains the key pillar right this second, but we're hopeful the consumer gets some help, by business cap-ex, or the dollar stabilizing a bit, which it has done in the last few weeks," Russell said.