Retail Spending Up In NJ…But There’s A Catch [AUDIO]

Retail sales were up sharply in 2011, at a record 4-point-7 trillion dollars nationwide, which was almost 8 percent higher than in the previous year, but there's a not-so-silver lining. Rutgers economist James Hughes says "A lot of that consumption was based on reductions in the savings rate - and borrowing again, rather than reflecting growth in incomes…we used to save about 10 percent (of our salaries) back in the 80's, then it dropped to 2 percent - it rebounded to about 5 percent last summer, but the last 6 months or so the savings rate has dropped to about 3 percent - so in essence households probably had frugality fatigue."

He says while it's a healthy sign that consumers are willing to spend - even if it's with plastic, "we may well have borrowed sales from the future -in that people wanted to celebrate during the holidays so that's why they took on more credit."

Pat O'Keefe, the Director of Economic Research at JH Cohn, says part of the reason why retail spending was up last year was that many people had been putting off buying a new car, and but finally wound up buying one in 2011.

"A lot of the cars that would have turned over earlier had we not gone through the deep recession" he says, "were now on their last tires- or last legs - and therefore the turnover is really a replacement cycle."

O'Keefe adds "after a fairly good spending party in the last quarter of 2011 - with respect to consumer spending and consumer credit - we may pay the price in terms of a hangover in the first quarter- the first half of 2012."