Is It OK to Spend Again?

NEW YORK (MainStreet) —  The holiday season may be over, but shopping season has only just begun.

Consumer spending increased in each of the final three months of last year, due in part to retailers ramping up their end-of-year sales, but many economists expect shoppers to continue splurging a bit more throughout 2011 and finally abandon some of the frugality they learned during the recession.

“The fall of 2010 marked a change in consumer spending habits,” said Bernard Baumohl, chief global economist at the Economic Outlook Group and author of The Secrets of Economic Indicators. “Americans have been remarkably frugal in the last two years, and have made real progress in improving their household balance sheets. Now, this allows them to feel more comfortable about spending and borrowing again.”

And spend they will. A recent survey from MasterCard found that the majority of consumers (61%) have no intention of cutting back spending in the new year even in the aftermath of their holiday shopping.  Likewise, an American Express survey found that 54% of consumers plan to spend at least as much as they did last year, with 14% saying they will likely spend more.  But perhaps the more startling statistic in the American Express study is the fact that consumers have drastically reduced their annual savings goals for the year, and now plan to put aside an average of $2,600 in 2011 compared to $14,000 the year before.

“We’re really starting to see consumers curtail their savings goals,” said Mona Hamouly, a spokesperson for American Express. “Our hunch is that consumers have been super focused on savings in the past, and have hopefully accomplished their goals and now have given themselves the leniency to spend a little more on the things that really matter to them.”

However, there are several factors at play here for consumers besides the simple desire to spend again after a long period of pinching pennies. Not only have many Americans worked to save more money in recent years, but they also have a larger amount of disposable income to start with these days, as the average salary in the U.S. after taxes increased by 0.3% in both October and November.

Moreover, even as the economy remains sluggish, there are an increasing number of signs telling average Americans to be hopeful. Specifically, the job market is seeing an improved employment rate, fewer people are collecting unemployment benefits for the first time and more companies planning to hire in 2011.

“There’s a sense that the worst is over and we can feel a bit more secure about our jobs and livelihoods now,” Baumohl said.

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