More jobs, higher wages: Holiday elixir for consumer spirits

This weekend marks the start of the all-important holiday shopping season. How the next few weeks go for retailers is generally a good barometer for the economy's performance in the coming year.

It is stacking up to be a Merry Christmas and a good new year.

There are nothing but tailwinds behind the American consumer. Of top importance: Most of us are back to work. The unemployment rate is set to fall below 5 percent, which has historically meant that the economy is at full employment. In other words, everyone who wants a job has one.

That is not quite the case today, given the outsize number of part-timers who would like to be working more hours. Lots of potential workers also gave up looking for a job long ago and are thus no longer counted as unemployed. But at the current robust pace of job growth, if sustained, even these underutilized workers will soon have all the hours they want.

Given the record number of job openings, there is good reason to think that job growth should remain strong. Indeed, job openings have surged across all industries. The only exceptions are the energy industry, which is struggling with the collapse in oil prices, and manufacturers trying to sell what they make to a soft global economy. Neither of these industries plays a big role in the Philadelphia economy.

Although we are not quite back to full employment, it is close enough that wages are finally starting to increase more quickly. Since the recession hit almost eight years ago, workers have been getting pay increases that have barely kept pace with inflation. That's finally changing, as the tightening job market gives workers some negotiating power with their employers.

More jobs and higher wages make up the elixir that will boost consumers' spirits. Most people are feeling better than they were just a few years ago, but they still don't feel great. That will only happen when their pay raises cover the increase in their living costs, and then some. Happy consumers are especially key to big ticket purchases such as cars or travel.

Speaking of travel, the incredibly low gasoline prices are a boon to consumers. A gallon of regular unleaded at my local Wawa is closing in on $2. This is about half what I was paying just over a year ago. Almost nothing makes consumers feel better than a low price on gas, a highly visible weekly expense.

Collectively, we are also in pretty good financial shape. We owe a lot less on our credit cards and mortgages. Indeed, the share of income the typical household has to pay on principal and interest on debts is as low as it has been since Jimmy Carter was president. Not to downplay the difficulties some are having managing their student-loan debt, but while this a growing problem, it is still mainly one for millennials.

Our homes are also worth a lot more. House prices nationally are nearly back where they were at the height of the housing bubble a decade ago. This time, however, housing values are resting on solid economic foundations, and not on speculation and subprime mortgages. Philadelphia house prices just hit an all-time high.

For the half of us who own stocks, we are enjoying record high stock prices. The market has gone a bit sideways this year, but that is after going almost straight up since the recession. There is some investor euphoria around the highest-flying technology stocks, but this is no tech bubble like that which burst after Y2K.

Given our better finances, lenders are willing to lend more freely. For a long time after the recession, lenders were skittish about making loans given the losses they suffered on the ones that went bad during the downturn. Now, it is much easier to get over lenders' bar to be approved for a car loan, a credit card, and increasingly even a mortgage loan.

This will be a good Christmas for most of us, but far from all of us. These remain very tough times for low-income households. They are earning the minimum wage or just above, which hasn't changed since the recession. They don't own a home, and certainly no stocks. And they may not have a credit score. Even if they do, it is way too low to get credit. We won't have a banner Christmas until these households enjoy better times, which may be a long time coming, given the state of our schools and social safety net.

The terrorist attack in Paris is also a reminder that things can go quickly off the rails. It would be a very different kind of Christmas if something like that were to happen here.

Barring such an extraordinarily unfortunate turn of events, however, it is hard to see anything dampening this year's holiday shopping spirit. Let's enjoy it.

Mark Zandi is chief economist at Moody's Analytics in West Chester. For questions and comments, contact help@economy.com.