United states: Job security leads to more spending, boosts economy

WASHINGTON (AP):

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

Their renewed confidence has boosted retail sales - just what is 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 per cent 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 per cent 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 and Analysis wrote last week.

Federal Reserve Chairman Ben Bernanke echoed that point Friday. He told a Senate panel he saw evidence that a "self-sustaining" recovery was taking hold because consumers and businesses were spending more.

More growth projected

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

Consumer spending is rising because the vast majority of working-age Americans are now breathing easier, despite 9.4 per cent unemployment. People who had jobs feared being laid off during the recession, which ended in June 2009, and for months after. 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.

By 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 are still reluctant to hire, not because they are still cutting jobs.