| Kippreport.com

More spending, healthier economy?

March 2, 2010 4:13 by Aarti Nagraj

Consumers in the US spent more in January this year, possibly signaling an upturn in the economy. Spending increased by 0.5 percent in January, in the fourth straight month of gains, according to figures from the US Commerce Department. The news prompted a rise in US stocks in the day following the announcement.

Japan also reported on Monday that consumer spending continued to grow. Household spending in January increased by 1.7 percent compared to the same period last year, the sixth straight month of increase, the Ministry of Internal Affairs and Communications said. Expenditure on cars, including vehicle purchases, rose 11.3 percent in January from the same period a year earlier, while spending on food, including eating out at restaurants, increased 2.3 percent, the ministry said.

Analysts say that it is difficult for consumers to spend more unless they have more income and confidence, and hence a rise in spending does signal an improvement in the economy.
But the exact benefit of a rise in consumer spending differs from country to country.
For instance, the mixed demographics of the GCC countries mean that only certain sectors of the economy will be affected.

Heberto Molina, senior associate at research company Booz and Company, says that spending in the GCC region never dropped as drastically as it did in places like the US. A year ago, many local retailers were of the opinion that spending would fall dramatically because of the financial crisis, he says.

“The reality is that it never really went down like that. There never was a drop in revenue the way the companies were expecting it to be. What happened is that the impact of the crisis was much more felt in some categories like luxury, cars, large consumer electronics etc. But in sectors like food, beverages, even small luxuries, there was not much of an impact,” Molina tells Kipp.
“There was a slowdown in growth, never a collapse situation.”

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Tags: consumer spending, Economy, Financial Crisis, impact, increase, recovery, US