WASHINGTON – A steady decline in layoffs is giving the vast majority of adults who have jobs the confidence to spend more freely and help energize the economy. They no longer worry so much about losing their jobs.

Their renewed confidence has boosted retail sales – just what’s needed to spark what economists call a “virtuous cycle”: Higher consumer spending raises company profits, which spurs hiring, which fuels more spending and growth.

Consumer spending is critical because it powers about 70 percent of the economy. It rose for five straight months through November, kicking off the strongest holiday shopping season since 2006. Many shoppers are showing enough confidence to splurge on new cars: Auto sales rebounded 11 percent in 2010, the first increase since 2005.

“The strongest showing for consumers since the peak years of the last expansion signals that the broader economy is near a threshold of self-sustaining growth,” analysts at Citi Investment Research & Analysis wrote last week.

Federal Reserve Chairman Ben Bernanke echoed that point Friday. He told a Senate panel he sees evidence that a “self-sustaining” recovery is taking hold because consumers and businesses are spending more.

Morgan Stanley economists say 4 percent growth is “likely, perhaps even conservative” in 2011, up from an estimated 3.1 percent last year. Late this month, the government will estimate economic growth for the final quarter of 2010.

Advertisement

Consumer spending is rising because the vast majority of working-age Americans are now breathing easier, despite 9.4 percent unemployment. People who had jobs feared being laid off during the recession, which ended in June 2009, and for months afterward. Fewer worry now, because most companies have stopped cutting staff.

Workers who survived the job cuts of the past three years have begun to conclude: “If they haven’t fired me by now, they’re not going to,” said Michael Koskuba, portfolio manager with Victory Capital Management.

October 2010, layoffs and other dismissals had sunk to their lowest point since August 2006. In December, employers added just 103,000 jobs — too few even to keep up with population growth. But that was mainly because they’re still reluctant to hire, not because they’re still cutting jobs.

The number of people applying for unemployment benefits has dropped in the past four months. And economists think employers will finally ramp up hiring this year.

“You’ve got 10 percent unemployment, and you add another 5 or 10 percent” for discouraged workers or those stuck in part-time positions because they can’t find full-time work, said Doug Hart, a retail specialist at the consulting firm BDO USA. But the remaining 80 percent, having survived the worst of the layoffs, “are feeling more secure about their jobs.”

 


Only subscribers are eligible to post comments. Please subscribe or login first for digital access. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.