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Good Bad’ Economy Inspires Consumers as Slump Eases

Good Bad’ Economy Inspires Consumers as Slump Eases (Update1)

 

By Pat Wechsler, Kim Jordan and Matt Townsend

May 13 (Bloomberg) — Brooke and Doug Sterenberg booked a seven-day, $2,800 cruise to the Bahamas on Carnival Corp.’s ship the Conquest, with its three-deck-high Twister water slide. It’s the family’s reward for Doug keeping his job.

“He made it through the first round of layoffs” at the Houston unit of bankrupt chemicals maker LyondellBasell Industries AF SCA, said Brooke, a 37-year-old mother of two. “We feel like we can’t control what’s going to happen in the future. No matter what, our family deserves a week away.”

The Sterenbergs are among Americans who are cracking open wallets as the U.S. economy begins to stabilize after the federal government spent, lent or pledged as much as $12.8 trillion to end the longest recession since the Great Depression, according to data compiled by Bloomberg.

Consumer confidence rose last month by the most in two years, and the pace of job losses declined. The Standard & Poor’s 500 Index climbed 34 percent, as of yesterday, from a low March 9 — the biggest such move over a similar time span since the 1930s.

“We are seeing what I call good bad reports,” said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania. “How can anyone think that 539,000 lost jobs in April is something good? But it is better than the month before and these are starting to make consumers feel more confident.”

Shopping Thaw

Pam Frederick and her husband abandoned their shopping freeze in May to buy him a $400 suit at Lord & Taylor in the Mazza Gallerie mall in Washington, close to the Maryland border. Nervous about the economy, the couple decided in February they didn’t need to purchase apparel, she said.

“A week ago, I went clothes shopping for the first time in months,” said Frederick, 54, an art consultant who lives in Chevy Chase, Maryland.

Ian Boyd, a 22-year-old resident of the Lower East Side of Manhattan, visited the P.C. Richard & Son Inc. on 23rd Street to “treat” himself to a 46-inch Samsung television for $1,300. His job as a disc jockey in New York clubs and conservative spending allowed the tattooed Boyd, bedecked in high-top sneakers and a sideways Yankees baseball cap, to pay cash for the high-definition unit.

“It has been a while since I bought anything nice for myself,” he said.

Vegas Strip

Across all industries, Naroff said he sees “slight improvements.” Convention cancellations in Las Vegas have slowed, according to MGM Mirage, the biggest casino operator on the Strip. Overall meeting visits in the city fell 29 percent last quarter, according to the Las Vegas Convention and Visitors Authority.

While attendance dropped 1 percent at Orlando, Florida’s Disney World in the three months through March, bookings for Walt Disney Co.’s U.S. theme parks are now running “modestly above” last year’s, said Thomas Staggs, chief financial officer of the Burbank, California, company.

Hertz Global Holdings Inc., based in Park Ridge, New Jersey, is seeing “improved” pricing after losing $80 million in the first quarter, Chief Executive Officer Mark Frissora said in his April 29 earnings conference call. The loss was 3.9 percent below analysts’ estimates, and the CEO said he sees “a light at the end of the tunnel.”

Fifty-two economists predict personal consumption will start rising in July, according to a Bloomberg survey. Median projections for spending growth in the third quarter increased to 1 percent from 0.7 percent at the end of March. Those interviewed project a gain of 1.5 percent in the final three months, versus 1.1 percent in the earlier survey.

Not ‘Coming Back’

Even so, the recession isn’t likely to produce the “irrational” spending of three years ago that was driven by relentless jumps in both real estate and stock market valuations, said Marie Driscoll, leader of the consumer discretionary equity team at Standard & Poor’s in New York.

“We’ve scraped off the froth in the economy, and we don’t foresee it coming back,” she said. “People felt rich in 2005 and 2006. Some were living well beyond their means. It will be quite a while before they feel rich enough to overspend.”

A Gallup poll in late April showed 32 percent of Americans intended to maintain their lower spending levels of recent months in what Gallup called a “new, normal pattern.”

Retail sales in the U.S. unexpectedly dropped last month, although by 0.4 percent compared with a 1.3 percent decline in March, the Commerce Department said today.

No Car This Year

While the Sterenbergs are spending for their trip in November, they’re helping make up for it by forgoing a new car.

“The cruise is something we can afford to do that’s a luxury,” Brooke said.

At the Apple Inc. store at 59th Street and Fifth Avenue in Manhattan, Phaeleau Cunneen, 48, “splurged” on a $30 AC adaptor for his iPod. He used his debit card so he wouldn’t increase his debt.

“It was an impulse buy,” said the physical therapist, who lives in Manhattan’s East Village. “But I’m definitely more aware of my spending, and I think it’s a good thing.”

As investors re-enter the stock market, their aversion to risk has reached the lowest level since July 2007, according to a Bank of America Corp. index. This measures financial stress using credit spreads, share-price volatility and the price of gold, among other things.

Investor Exuberance

A Bloomberg survey of users on six continents showed that confidence in the global economy rose to the highest level in 19 months.

The Bloomberg Professional Global Confidence Index climbed to 38.72 in May from 21.2 in April, the biggest increase since the survey began in November 2007. Because the number is below 50, it means pessimists still outnumber optimists.

The warming trend is making Peter Zalewski’s job more difficult. The owner of Condo Vultures LLC in Bal Harbour, Florida, buys distressed condominiums in Palm Beach, Dade and Broward counties. From the week of Thanksgiving to May 5, the number of properties in the three-county area dropped 19 percent, while a rising number of high-end investors pushed up prices and forced faster sales.

“I knew things were changing when this unremarkable apartment at the Vue on Brickell got 12 offers by the Monday after the Friday it was listed,” Zalewski said. “There was no granite and no terrazzo. Yet it sold for $15,000 more than the bank asked, and in like 45 days. I used to be able to wait 90 days and then go to the bank with a lower offer.”

Auction Business

More buyers help Ritchie Bros. Auctioneers Inc., based in Richmond, British Columbia. In late April, the world’s largest industrial auction firm held its best-attended sale ever with 8,500 registered bidders at a three-day event in Edmonton, Alberta. Everything from oilfield-support equipment to logging trucks was on offer.

Attendance was 12 percent higher than a six-day February event in Orlando that usually attracts more traffic.

“We’re the equivalent of an M&A lawyer when the economy is going up and a bankruptcy trustee on the way down,” said Peter Blake, CEO of the 51-year-old company.

While prices declined between 2006 and year-end 2008, Blake said he saw stabilization and then even an up-tick in the first four months of 2009, especially at the Edmonton auction.

“We talk to the economy every day when we go down on the floor and shake these guys’ hands,” Blake said. “Their faces tell us how things are going, and there is a higher level of optimism today than six months ago.”

To contact the reporters on this story: Pat Wechsler in New York at pwechsler@bloomberg.net; Kim Jordan at kjordan2@bloomberg.net; Matt Townsend in New York at mtownsend9@bloomberg.net.

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