Americans Cautiously Prepare to Spend

EmployedAfter three years of brutal recession and tepid recovery, the outlook for the U.S. economy this year may boil down to a tale of three workers and their families ? their hopes, fears and, most of all, their decisions on spending the money they earn.

For now, they seem to be getting their spending mojo back. But they are moving forward with a new caution, a hard-earned sense that events could quickly turn for the worse and they’d better be prepared.

In an economy that relies on consumer spending for 70 percent of the nation’s gross domestic product, nothing really matters as much as what the 90 percent of U.S. workers with jobs decide to do with their money ? spend it, squirrel it away, use it to pay down debt.

Many analysts expect consumer spending to play a big role in driving economic recovery this year, especially after the best holiday retail shopping season since 2006.

“They’re feeling more comfortable and not so gun-shy about going out and shopping,” said Shawn DuBravac, chief economist at the Consumer Electronics Association.

A survey by his group and others showed more consumers at all income levels hitting the stores, indicating more confidence in a recovery.

But it’s not quite that simple for Mark Gran, 52, a sheet-metal fabricator in Kansas City, Kan., or 44-year-old computer software developer David Viggiano in suburban Atlanta or even for 28-year old Neri Cruz, whose job as a postal worker in San Marino, Calif., would seem to provide security and solid income.

For all three and their families ? as with millions of other Americans ? their greater optimism coexists with worries over rising costs for energy and other essentials, prolonged high unemployment and a shaky housing market.

They share something else as well: the scars of a painful recession that is never far from their memories or their pocketbooks.

Gran spent one of his happier holiday seasons with his 17-year-old son and ex-wife in Jupiter, Fla. They hit the beaches, exchanged gifts and visited with relatives.

It was a striking contrast to a year earlier, when Gran was stuck in the cold winter of Connecticut, jobless and broke.

“There was no money. No vacation,” he said tersely.

For three years, Gran got by on unemployment checks and doing whatever odd jobs he could find, such as yard work. But last September, he was hired by A&E Custom Manufacturing, a Kansas City metal fabricator.

Gran now earns more than $40,000 doing computer-aided design. He’s been staying with a relative but now believes he can afford his own place. He plans to buy new furniture and other things for his apartment.

Still, he’ll hardly be spending freely. For one thing, Gran has debts to pay off. He won’t say how much but instead lets out an uneasy laugh. “Yeah, it’s going to take a couple years,” he said.

On the whole, American consumers have sharply reduced their debts since late 2008, thanks in part to fears of layoffs and lender cutbacks in issuing credit. The nation’s personal saving rate, near zero during periods of the housing boom, has been above 5 percent for the past two years.

Analysts think that could keep rising in the long run. And the higher the saving rate, the less money is available for spending.

Gran intends to spend more, but only to a point. His goal is to sock away a third of his paycheck, at least until he builds up a three- to six-month cushion for living expenses. He wants to be hopeful about the future, but the past decade has left him wary.

The Detroit native started out in the metal fabrication trade as a 21-year-old in San Diego County, working on aircraft wing sections for a contractor. He would stay in Southern California for two decades.

In 1998, he moved to the East Coast and was bounced out of work about every three years. When manufacturers stopped hiring during the recession, he took a part-time job as an order filler for Staples, making $10 to $14 an hour, but was laid off from that position as well.

“I’m trying to fit in and help out,” he said of his current company. But the economy worries him. “Gosh, oh, boy, I wish it was doing better,” he said. “There’s only so much you can do. It’s out of my control.”

Cruz called 2010 “the year of austerity” for him and his wife, Cindy.

With his pay frozen as a supervisor at a San Marino post office and his wife enrolled in nursing school, the couple’s only major purchase was a modest Clarita home they bought at a foreclosure sale. They skipped taking a summer vacation. And at Christmas, they dropped friends and distant relatives from the gift list.

But next month, Cruz expects to see a pay raise of 4 percent to 5 percent. And he’s counting on extra dollars from the Social Security payroll tax cut for all workers this year.

For the average worker making $40,000 a year, the payroll tax cut will mean an additional $800 in take-home pay. Over the course of the year, it’s likely to add $60 billion directly into the economy in the form of consumer spending, predicted Michael Niemira, research director at the International Council of Shopping Centers.

Cruz already knows what he will do with that extra cash: “We will be able to take a few days off and go somewhere,” he said.

The Cruzes also have a long to-do list. One of their two old-model cars, for instance, broke down often last year, so they plan to buy a used car. They also want to put in new windows and replace the floors in their house.

But just how many windows are ordered, he said, will depend on their tax returns and Cindy’s ability to land a full-time nursing job after graduation this summer.

If all goes well, said Cruz, an amateur photographer, he may even splurge for a new camera he has been eyeing for some time.

Yet for all his renewed optimism, the Guatemala native remains cautious. He worries about the increasing cost of gasoline and heating bills in the winter.

With the global recovery gathering strength, prices for crude oil have been climbing steadily since fall and are likely to head higher in the coming months.

Last year Cruz cut up one of his three credit cards after the interest rate was inexplicably jacked up. He hopes to whittle down his total balance of about $4,000.

So even as he looks at making some big purchases, Cruz is considering how to scale back or eliminate little things to make the math work.

High on that list is the $40 a month he spends on cable TV. “It’s a luxury,” he said.

As a software developer, Viggiano rode out the recession better than most.

Viggiano, who lives with his stay-at-home wife and child, earns more than $100,000. That puts the Viggiano family in the top fifth in income nationally.

How people in this group consume is particularly important because they account for roughly double their share in overall spending. When they hunkered down during the recession, sales at higher-end retailers, restaurants and other services tanked. They have since led the comeback in spending.

And that trend looks to continue. A national survey for American Express Co. last month found 62 percent of households with incomes of at least $100,000 planned in 2011 to spend as much as or more than they did last year ? 8 percentage points higher than consumers overall.

Like many homeowners up and down the wealth scale, the Viggianos put off major upkeep on and investments in their house during the recession. But this year, they’ll be replacing the air conditioning and heating unit as well as the hot-water heater.

Viggiano has more cash to work with. He got a sizable raise and, with the recent stock market rally, his investments also look a lot better than a couple of years ago.

But he’s still playing catch-up on saving for retirement and in managing his family’s overall wealth. By some measures, home values in the greater Atlanta area, for example, are where they were a decade ago.

“I’m not moving anywhere any time soon,” Viggiano said.

Source: McClatchy-Tribune Information Services.