Consumers Are Down on the Economy, but They're Up on Spending

Forget about bulls and bears, most Americans are chickens when it comes to the economy. Thing is, while they may have good reasons for their fear, their spending behavior suggests greater courage.

A majority of Americans -- 57% -- believe the economy has worsened during the past year, according to a recent Bloomberg survey. The pessimism is despite several signs, such as the S&P 500's 73% gain and and economic growth at a 5.9% annual pace in the fourth quarter, that things are getting better. But combined with the weak jobs data, the indicators point to the jobless recovery that many expect.

Decreasing Fear

"A sense of gloom pervades perceptions of the economy and nation; barely one-in-three Americans say the country is on the right track," reveals Bloombergin a press release. "Just 9% of those polled say they believe the economy will be strong again within a year and 4% of Americans who cut back on spending now say they are confident to start back up. "

The survey findings arise from consumers' continued worry about their job security, with unemployment near 10%, says Scott Hoyt, senior director of consumer economics for Moody's Economy.com.

The pace of job losses is slowing, however. Hoyt notes: "So far, the economy continues to lose jobs every month," but he adds that consumers with cash are spending it. "Consumers are not as fearful as they were a year ago."

The Tough Goes Shopping

Americans' unease about the future is complicated by an array of contradictory data.

The Gallup Economic Confidence Index for the week of March 15-21 sustains a three-week depressed trend. The Conference Board's Consumer Confidence Index fell sharply in February after rising in January. According to the Conference Board, some 1 million "discouraged" people want a job but have given up looking for one. It appears, though, that when the going gets tough, the tough go shopping.

Best Buy (BBY) shares are rising after the top consumer electronics retailer reported better-than-expected fourth-quarter results today, fueled by strong holiday sales of laptops, cell phones and flat-panel TVs. Analysts expect the Minneapolis-based company to reap big benefits from the upcoming release of Apple's (AAPL) iPad.

Consumers are also buying pricey jewelry from Tiffany & Co. (TIF), though the company's sales weren't as robust as Wall Street had forecast. Nonetheless, Tiffany plans to open 17 new stores this year.

More Weakness Ahead

Auto sales remain weak in part because of bad publicity surrounding Toyota's (TM) safety problems, though Ford (F) and General Motors both posted double-digit sales gains as their Japanese rival faltered. J.D. Power & Associates expects 2010 auto sales to rise 13% over 2009, declaring that "the worst is over."

Is it? Some economists say not quite. Nouriel Roubini's Roubini Global Economics research outfit, for one, warns this is no time for celebration. Roubini was one of the few experts to forecast well in advance the U.S. financial meltdown and earned the nickname "Dr. Doom" for his often pessimistic view on the economy.

"The U.S. economy will weaken in (the second half of) 2010 due to the waning impact of the inventory cycle and fiscal stimulus," notes a Roubini Global Economics forecast. "Personal consumption will remain sluggish going forward due to further correction in home prices, gradual deleveraging by households and a jobless recovery."

Lynn Franco, director of consumer research at The Conference Board, tells DailyFinance that she expects growth to be lackluster this year. Current spending levels are deceptively strong because they've been helped by the economic stimulus and other incentives, some of which will phase out later this year.

"We don't expect there to be very robust spending this year," she says. "While some fears may have eased...you still have tight credit conditions."

Confusion at a Turning Point

Trying to discern what motivates consumers is more difficult than nailing Jell-O to a wall. It's puzzling that people who remain worried about losing their jobs are still willing to make expensive purchases such as automobiles, consumer electronics and jewelry. For economists such as Hoyt, though, these confusing signs aren't surprising.

"When the economy is at a turning point, you frequently get mixed signals," he says. The economic picture will remain muddy for quite a while.