Robust holiday shopping threatens savings rates

While strong holiday shopping figures brought hope to the economy in December, they may have a negative impact on the savings rates of U.S. consumers.

With the bills for December's spending now arriving at consumer's doorsteps, those new debts could impact the economy at a sensitive time. Last year ended with a sickly economy seemingly on the mend, but unless there is some fundamental improvement to back up December's uptick in spending, those January bills could trigger yet another relapse.

Retailers rejoice over spending

Though retailers had reason to be concerned going into 2011's holiday shopping season, it kicked off with a bang over the Black Friday weekend, and continued the momentum well into December.

The activity was encouraging enough for the National Retail Federation (NRF) to raise its estimate of 2011 holiday shopping growth in mid-season. During December, the NRF revised its sales forecast to 3.8 percent; in October, the NRF had forecast holiday sales growth of just 2.8 percent.

Over the prior 10 years, the average holiday shopping sales increase had been just 2.6 percent. So the NRF's revision re-characterized 2011's growth from about average to clearly above-average.

Can consumers afford to be generous?

This is great news for retailers, but what about for consumers, who have to face those January bills? With the soft economy over the past four years, it's not as though they have strong reserves to draw upon. After all, personal savings rates in the U.S. have shown only modest improvement in recent years, after having trended downward for a quarter century, according to figures from the Bureau of Economic Analysis.

Of course, many shoppers weren't drawing on savings -- they were dipping deeper into their credit limits. In that respect, consumers do not have much breathing room. According to the Federal Reserve, consumer credit outstanding has eased just 4 percent from its 2008 peak, and actually drifted upward throughout 2011.

Consumers may feel a little less restricted by this debt, because interest rates are much lower than they were a few years ago. However, that puts the economy in a very sensitive position. Low interest rates on CDs, savings accounts, and money market accounts still restrict the income of those Americans with net savings. At the same time, heavily indebted Americans are dependent on those low interest rates continuing, or else they will feel a tighter squeeze.

What might help

The retail successes of the 2011 holiday season were a triumph for consumer confidence. But what matters more for 2012 is business confidence.

Consumer confidence has limited value if consumers have to go deeper in debt to express that confidence. Only when business confidence is sufficient to spur job and wage growth will the economy's rally become sustainable.