As Consumers Dip Into Savings, Businesses Hunker Down for More Bad Times

Killjoys

After saving up for the last five years, Shannon Alexander and her boyfriend are buying a house this month just outside Denver. At four bedrooms and 2,300 square feet, their new place is twice the size of the condo Alexander bought in 2004, and at $389,000, it's more than twice the price, too. "I just feel really comfortable with where the economy is because my job is very much consumer-based," says Alexander. She and her boyfriend, Josh Hill, are store team leaders at Target (TGT). Says Alexander, "If Target does well, then I do well."

U.S. consumers have been surprisingly upbeat lately. After a slow spring, retail sales have increased for three straight months, posting their strongest gains since the end of 2010. Consumer confidence has been on a tear since mid-August and is now higher than it's been in five years. Low interest rates and higher prices have helped push home sales up 11 percent over 2011. All this despite incomes that have remained flat, unemployment that's still high at 7.8 percent, and gasoline and food prices that are higher than they were a few months ago.