Stephen Foley: Macy's is heaving but the US still has a long slog to recovery

US Outlook Tis the season for retailers to be jolly. American shoppers, whose maxed-out credit cards drove the last global economic boom, are back – and in a big way. Store managers can hardly believe the numbers. Last Saturday, the last Saturday before Christmas, sales were running a full 15 per cent ahead of the same day last year, according to some surveys. The signs were that yesterday was going to be a mob scene. Shopping malls are packed. Here in Manhattan, you can barely get through the door at Macy's, the world's largest department store. Then you have online sales, too, with cyber-shopping running double-digit percentages higher than 2009. Economists are jacking up their forecasts for fourth-quarter US GDP growth, such has been the great spending spree.

With apologies for playing the Grinch, I'm afraid this is not the start of a sustainable consumer boom. Even a cursory glance at consumer spending numbers released by the Commerce department yesterday shows why. Those latest official numbers covered October (up 0.7 per cent, month-on-month) and November (up a further 0.4 per cent). Disposable personal income, though, has been up just 0.3 per cent each month. In other words, consumers are spending more not because they are earning more, but because they are saving less. The picture is undoubtedly the same this month, if not more so.

With household debt still above 90 per cent of GDP in the US, and debt service costs consuming a historically high proportion of disposable income, despite record-low interest rates, Americans are going to have to save more, not less. The world's largest economy is ending 2010 on a much brighter note than looked probable in the summer, when the horror headlines out of Europe and political gridlock at home dented confidence and looked in danger of derailing recovery altogether. We are back now on the track that everyone expected at the start of the year: a slow slog forward, with companies proceeding cautiously, under-capacity throughout the economy keeping inflation at dangerously low levels, and unemployment stubbornly high at nearly 10 per cent, in turn holding back personal income.

The festive high spirits just mean a bit more of a headache in January, I'm afraid.