business in america
In recent years, the story's been pretty simple: Consumers have carried the nation's economy while businesses sat on the sidelines, nursing the wounds of a bear market, terror attacks, corporate scandals and war.
But all that has changed lately, if the latest economic reports are to be believed. The only question now is whether businesses will start hiring enough to help get consumers back into the game.
After a burst of spending fueled by tax-rebate checks, cash from mortgage refinancing, and attractive auto deals -- the economic equivalent of a sugar high -- consumers have finally taken a breather from spending, according to the government's latest report on personal income and spending.
But businesses have developed an appetite for new equipment and software, according to a separate report showing orders for durable goods -- big-ticket items meant to last three years or more -- hit their highest level in nearly three years in October.
Perhaps more important: Businesses have slowed their job cutting, according to the government's report that new jobless claims fell to the lowest since before the last recession, raising hopes for decent job growth in November.
"The question was whether the business sector had cleaned up their own balance sheets and done enough trimming of the fat and had enough confidence to start spending" to help the recovery, said Lehman Brothers chief economist Ethan Harris. "The answer is, decisively, yes."
Wednesday's report that an index of manufacturing in the Chicago region jumped in November to its highest level since October 1994 only reinforced this notion, raising hopes that a national manufacturing survey, due Monday, will show further strength.
Without consumers, how strong will recovery be?
But unless the pickup in business spending translates into a lot more jobs, and stronger wage growth, then the economy won't skyrocket the way it usually does during the first stages of a recovery, since consumer spending still fuels more than two-thirds of the economy.
"You're not talking about a full-blown business-cycle recovery here, which is something like 6 percent GDP growth for a year," Harris said. "To get that, you'll need the whole economy operating in full-growth mode, and clearly the consumer isn't."
Of course, the third quarter's growth rate of 8.2 percent in gross domestic product (GDP), the broadest measure of the economy, likely fits most people's definition of "skyrocketing." But that kind of growth won't be repeated soon, especially if consumers are getting tapped out after their recent buying binge.
"The unleashing of business pent-up demand will ensure that the U.S. economy's recovery will continue, but the unwinding of consumer spent-up demand will ensure that it won't come roaring back," Mark Zandi, chief economist at Economy.com, wrote recently.
While some analysts hope for a merry holiday shopping season, thanks in part to recent surveys by the University of Michigan and the Conference Board pointing to a surge in consumer confidence, other surveys hint that overeager Wall Streeters might have a bit of a blue Christmas after all.
This week, the Consumer Federation of American, the Credit Union National Association and the Conference [next page]