Sherie Cobb and Becky Hind got up at 3:30 a.m. for their Black Friday shopping spree in Bellingham, Wash.
The sisters arrived at the Bellis Fair mall at 4:30 a.m., ready to shop till they dropped. Ms. Cobb, 43, and her husband Brian recently refinanced their home in Ferndale, Wash., enhancing the cash flow for themselves and their two kids.
Their home was reappraised at a higher value, allowing them to chop their monthly mortgage payments to $1,050. Aided by an interest rate reduction, they are now saving $450 a month in mortgage payments. Not only did Ms. Cobb and Ms. Hind have hundreds more dollars to spend on shopping, they were also drawn to deep discounts. They snagged a porcelain statue of a parrot for half price and landed deals on clothes from J.C. Penney and other retailers for up to 70 per cent off.
"Slowly, people are starting to open their wallets," said Ms. Cobb, who works in a physiotherapy office.
They're not the only ones in a more buoyant mood. After years of false starts, the U.S. economy, and its people, are finally getting their momentum back.
The evidence isn't just in the crowded lineups of frenzied Black Friday shoppers. It is in rising house prices and healthier housing starts, booming car sales and sturdier job creation.
Consumer spending is the engine of the US, accounting for 70 per cent of economic activity. However, since the recession and housing crash that began in 2008, the debts of U.S. consumers have weighed down spending.
The arrival of Black Friday – so named because it marks the day retailers hope to move into the black, or profitability – is a key moment in determining the health of consumer spending.
Caveats abound: Some of that orgy of spending is merely drawn from other months, the effect of online shopping is unclear and the increase in the number of shopping hours further blurs the picture. But as one of the busiest shopping days of the year, Black Friday is a key gauge of how consumers are feeling about their prospects.
The world's largest economy is finally shifting out of neutral – and that shift is boosting consumer confidence, with sentiment now rosier than at any point since the recession.
David Kelleher, who runs a Chrysler dealership in the Philadelphia area, is witness to the new verve of the American consumer. He's seen a steady increase in demand for sedans and jeeps – not in the low end, but models priced in the high $40,000 range. "The people we see in the showroom are comfortable with their place, they feel that the worst is behind them so they don't feel like they're going to slip backwards," he says.
He sees higher sales ahead as consumers shrug off election jitters this year, and a more stable economy fuels demand next year.
It's not just talk. He's breaking ground in March on a $1-million renovation to expand his facility – "with full confidence" – to make space for more salespeople, new cars and services. He sees double-digit growth in sales and services next year, and plans to hire at least 10 people to meet demand.
In fact, the outlook for the U.S. economy "is stronger now than at any point in the last three or four years," says Harm Bandholz, chief U.S. economist at UniCredit Group in New York. "From a broad perspective, things are getting better."
He's no Pollyanna. For the past three years, his views have been bleaker than other forecasters because of his concern over debt loads. Several reasons explain his new-found optimism – the chief one being housing. Prices and construction are picking up, which is turning the sector from a "headwind to a tailwind." Consumers are confident enough that they're spending again, buoyed by feeling wealthier from rising home prices. And the jobs market is mending, with the pace of layoffs subsiding.
Surveys show households are less pessimistic on their job prospects and feel an increased sense of security, he adds. Uncertainty about the fiscal cliff is casting a cloud over both businesses and consumers – but a resolution there will have a dramatic impact on capital spending and juice the stock market, he believes.
Housing is a fundamental source of the shift, a sector that is showing clear, sustained signs of healing. Measures of new home construction, builder sentiment, new-home sales and price increases are all at multiyear highs. It remains a far cry from pre-recession levels – but the steady improvements over the course of this year are underpinning economic expansion and a key reason for rising consumer confidence.
The spillover effects are significant. An improving economy and tight supply are bolstering home price gains, which are 5 per cent higher than last fall – the biggest annual increase in six years, according to property information provider CoreLogic. Average national home prices have risen for seven months in a row.
Increasing house prices create a so-called wealth effect, as growth in the value of peoples' homes gives them the security to spend more. Every dollar increase in housing wealth typically boosts consumer spending by about 3 cents, according to Patrick Newport, Lexington, Mass.-based economist with IHS Global Insight. He expects sustained growth in house prices, because inventories are so low.
That explains why the sisters in Bellingham say they are optimistic about the U.S. economy. Ms. Hind, 49, lives in California, where she and her husband Rex recently upgraded to a 3,000-square-foot house.
It has been a difficult journey in California's housing market, Ms. Hind says, who works as a deputy sheriff and law enforcement trainer.
She and her husband bought a home in Sacramento, Calif., for $197,000 in 2000. After pouring tens of thousands of dollars into renovations, that home's value rose to $370,000 in early 2008, before the financial crisis hit. This month, the California couple sold that Sacramento house for $275,000 – but that price is at least $25,000 higher than a couple of months ago.
Housing "was the missing link in this recovery story," and though levels are still low, growth rates in housing starts look "sensational," says Craig Wright, chief economist at Royal Bank of Canada. Years of under-building in the sector on top of pent-up demand now mean "the good news in the housing sector is probably going to continue for some time."
An improved housing market also spells job growth. Mr. Newport expects two million new jobs will come from the construction side alone in the next two years as housing starts ramp up.
When housing-related spinoffs are included, hiring in construction, manufacturing and retail could soon add 30,000 to 40,000 jobs a month, according to UniCredit's Mr. Bandholz. For each new home that is built, three jobs are created, generating $90,000 in taxes for government coffers, the U.S. National Association of Home Builders estimates.
Housing is seen as a leading economic indicator, but jobs tend to be a lagging one. The recession wiped out a staggering eight million jobs, and recovery in the labour market has been slow, painful and uneven. About four million jobs still haven't come back.
But recent months show improvements, with average payroll gains of 173,000 since June and a declining rate of underemployment. Retailers are hiring, particularly those at home furnishing and furniture stores. So is the construction industry and factories, including the auto sector.
An improving labour market is giving many people more confidence to spend. In Washington state, Josh Newman is pleased to be working on Black Friday, happy to be at the sales counter at Arch Telecom, where he gets commissions for everything from selling cellphones to earbuds.
At the Bellis Fair mall, Mr. Newman, 23, makes the state's minimum hourly wage of $9.04 (U.S.), plus commissions – a relief after an eight-month bout of unemployment. "It was rough going for a while. Now that I have a job, it's a lot less worrisome."
Many measures track the mood of U.S. consumers, and virtually all are pointing in the same direction – way up. Consumer confidence doesn't always translate into higher retail sales. But it does show brighter news about the economy is seeping into the American psyche.
Retail groups predict growth in spending this holiday season, although momentum may not be as strong as last year. It's a different story for online retail spending, which is expected to soar 17 per cent from last year's levels, according to a comScore forecast.
Early estimates of Black Friday show traffic levels at stores were "decent but not eye-opening," according to Retail Metrics Inc. Many people are migrating to online shopping, with IBM reporting an 18-per-cent jump in sales on Thanksgiving Day.
Doris Edwards is optimistic about the economic outlook. "We've been in a slump, and now we're coming out of it. It just takes time," says the 41-year-old health care office manager at Walden Galleria mall in Cheektowaga, N.Y.
But while she feels more than ready to go home by 11 a.m., Ms. Edwards says this is how she will do all of her Christmas shopping – in store. She has no interest in online shopping. She likes to see and touch the products before she buys them.
Gasoline prices are another source of relief. Prices at the pump have subsided 12.3 per cent since mid-September, easing pressure on the pocketbooks of U.S. consumers. Nowhere is the better mood about jobs and housing more evident than in auto sales. New car and truck sales are well above last year's levels – with October showing 7-per-cent growth from last fall – buoyed also by low borrowing costs and the need to replace aging vehicles.
While the stock market has wobbled in recent weeks, the benchmark Dow Jones industrial average is 16 per cent higher than a year ago.
The best way to characterize American consumers these days is "segmentation," says Michael Silverstein, senior partner at Boston Consulting Group in Chicago. A fifth of the population enjoys prosperity and recovery, another 20 per cent are "suffering badly," and the rest are in the middle – still financially bruised, with modest savings. "They have many more wants than they have money," he says. "For them, life is still tough."
Challenges still abound. The jobs market is still nowhere near its pre-recession levels, and the number of long-term unemployed people is still dizzingly high. Incomes haven't improved much – which means the spending they have done is eating away at savings (the savings rate has fallen to 3.3 per cent from 3.7 per cent).
Many of the economy's new jobs have been in lower-wage positions, and millions of Americans are toiling in part-time positions when they'd prefer full-time work.
The big question mark is the fiscal cliff, that looming $600-billion combination of tax increases and spending cuts that could strangle the U.S. economy next year. Estimates vary over its impact on growth. But while the risk remains, "we see it as a fiscal curb rather than cliff," says RBC's Mr. Wright.
Compared with the dark days of 2009, the sisters in Washington aren't frightened by the fiscal cliff.
With home values on the rise, Ms. Hind sees better days ahead for herself, her sister and her country. "It's awesome," Ms. Hind says, before heading into another store.
In the pre-dawn fluorescence of the Target store in Tonawanda, N.Y., Devonte Hubbard rolls up the camping chair he has been slumped in, waiting to save $500 on a 50-inch Samsung television.
"It's four o'clock! Let's get our TV," Cleveland Jones says to his boyfriend, who has been stoically waiting by his side through the night.
Both men say they are feeling more confident this year as the economy slowly gets back on track. Now that the housing market is looking up again, the two are looking to buy a house together, likely within three years.
"It does seem better than it was a few years ago, as far as not being in a recession," says Mr. Hubbard, a FedEx worker. "People are buying more, and spending more. A lot of people are better off financially than a couple years ago. Is there still room for improvement? Yes … It's a work in progress."