Three signs consumers are inching back

January 14, 2011: 11:48 AM ET

We're dining out again and buying airlines tickets. But is it a comeback?

Applebee's

Meet me at Applebee's?

For decades, the consumer has been the engine driving growth in this country. Since the economic downturn started in 2007, consumers have watched as their most prized assets – investments and homes – erased much of their value. They have felt poorer, so they've saved more and spent less as they paid off debt following years of too much spending.

But things are starting to look up for the consumer, even if ever so slowly. They're still gun-shy, but improving U.S. retail sales in late November and December have led some to believe that spending will continue picking up in the coming months.

It's two steps forward, one step back. In the first week of January, Gallup Poll Chief Economist Dennis Jacobe noted that daily consumer spending in stores, restaurants, gas stations, and online dropped dramatically. Spending averaged $55 in the week ending January 9 – down as expected but also well below the $68 average for the same week during the previous year. Whatever reasons for the big drop, Jacobe says "there are no signs that consumer spending will improve much in early January 2011."

That may prove true, but don't underestimate the resiliency of the American pocketbook. A few signs suggest consumers are shedding their frugality and are cautiously wading back into spending mode. It may be too early to call it a comeback, but in this fragile economy, any signs of improvement are welcome. Here are three:

We're eating and drinking more: If December's report on the nation's unemployment rate was unnerving, look deeper. It's true the economy added about 50,000 fewer jobs than economists expected as the jobless rate hovered at a high 9.4%, but robust hiring in restaurants and bars signal that consumers might just be feeling modestly better about spending more.

After a dismal 2009, restaurants have seen better sales since early 2010 across the country. In December, the food and services industry added 25,00 jobs and was the chief driver of a rise of 47,000 jobs in leisure and hospitality – the sector that created the most jobs out of the 14 areas that the government tracks.

The higher demand for eating out might lead to more jobs, but the larger point is that it also adds evidence that consumers are becoming more flexible with their spending, says William Fox, economics professor at the University of Tennessee.

"They've cut back so much," Fox says of consumers. "They've been denying themselves pleasures and now we've seen somewhat of a turnaround."

We're traveling and flying more: During the height of the economic recession, it seemed that "staycations" for the cash-strapped were the way to go. But things have started to change and people are now spending more on the luxury of travel.

Though still below pre-recession levels, spending on tourism outpaced economic growth at various points throughout 2010, according to the US Commerce Department. Real spending on travel and tourism increased at an annual rate of 8% during the third quarter, following a 3.4% rise during the second quarter. Meanwhile, GDP increased only 2.5% during the third quarter after rising 1.7% during the second quarter.

And it's not as if travelers stayed close to home, either. Spending on flying increased 29.8% during the third quarter of 2010, after rising by 4.8% during the second quarter amid falling airline prices that helped increase demand for air travel, according to government data.

Consumers aren't quite globe-trotting jet setters, but the uptick – however modest – might just offer a glimpse that consumers have regained some strength.

We're feeling a little richer: After seeing huge plunges in 2008 and 2009, U.S. household wealth has recently risen as household debt contracted at a slower rate than previously.

During the third quarter of 2010, household net worth climb to $54.9 trillion following a $1.4 trillion drop during the previous quarter – driven largely by financial assets such as rallying stocks and mutual fund holdings.

Meanwhile, household debt shrank at an annual rate of 1.7% after falling by 2.2% during the second quarter.

No doubt households are still deleveraging, especially since many forecast that home values could fall further in 2011. And whatever gains in household net worth might come throughout 2011 could be discounted by the country's troubled housing market.

Needless to say, it's a positive development for consumer confidence when households are feeling richer again, even if only slightly.

Also on Fortune.com:

How a housing slump will slow the jobs train

America, it's time to start taking risks again

A New Year brings new economic headwinds

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About This Author
Nin-Hai Tseng
Nin-Hai Tseng
Writer, Fortune

Nin-Hai Tseng covers economics and finance. Before joining Fortune, Tseng was a reporter at The Orlando Sentinel and a public affairs associate at GE. She holds an MPA from Columbia University and a BS in Journalism from the University of Florida. She lives in New York City.

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