Shoppers’ holiday-season splurge was likely a preview of what’s to come in 2011, and economists say it should embolden companies to expand and hire. Americans spent more in the 50 days before Christmas than analysts had expected—the sharpest annual increase since 2006. It’s the surest sign yet they’re becoming less frugal as the economy rebounds. “It has been the consumer that has been afraid to spend that has held the economy back and held businesses back from hiring,” says Joel Naroff of Naroff Economic Advisors. “That cycle is beginning to break.”
Normally in January, shoppers recover from their holiday splurges by curtailing their purchases. That’s not likely this time, economists say: The tax cuts approved by Congress, a rising stock market, a slow but steady rise in hiring and banks’ growing willingness to lend will sustain shoppers’ spending. “I don’t think consumers are going to suffer a hangover after Christmas,” says Mark Zandi, chief economist at Moody’s Analytics. “They are going to hang tough and spend more aggressively in 2011.” Zandi thinks consumer spending will rise 3.6% in 2011, twice as fast as in 2010. That would propel the economy to grow about 4%, up from the 2.8% Zandi expects for 2010.
