Consumer fear: Save, use what you have
NEW YORK (AP) - April 4, 2008 Lynda Nicely has been living in a sparsely furnished rental
apartment in a Milwaukee suburb since October while she saves
enough money for furniture at a second hand store. And when
temperatures soar this summer, she plans to buy a fan, not an air
conditioner.
"I am a little rattled," said the 28-year-old resident of West
Allis, Wis., who took a second job as a waitress and plans to hoard
three months worth of emergency cash just in case she loses her
primary job in public relations.
A growing number of anxious people across all income segments
are shopping at less expensive stores, reacquainting themselves
with the library, paying down credit card debt and cutting back on
new clothes and cars, vacations and meals out. The psychology of
the American consumer has turned as worries heighten about the job
market, the slump in real estate and soaring daily living costs.
Industry followers say shoppers' fear, which has been escalating
since last July, could very well worsen what ails us.
Such spending cuts could be "a self-fulfilling prophesy" and
could hasten the economy's slide, said Lynn Franco, director of The
Conference Board Consumer Research Center.
"I don't think (the spending slump) has bottomed out," said
Candace Corlett, principal at consulting firm WSL Strategic Retail.
"Shoppers are learning a new behavior: how to resist temptation.
There is a lot of fear out there."
Such worries are driving shoppers to cut back on big-ticket
items like appliances, delay redecorating their houses and shop at
discounters like Wal-Mart Stores Inc. and thrift stores for second
hand clothing. They're particularly avoiding full-priced fashion
chains and department stores at the mall.
Consumers have every right to be nervous - the government data
out Friday showed unemployment and job losses were higher than
expected. It also reported only modest wage growth, which makes
people feel like they are losing money as food and gas prices keep
rising.
Shoppers' economic outlook for the next six months is at a
35-year low, levels not seen since the Oil Embargo and the
Watergate scandal, according to a reading last week by the
Conference Board, a business-backed research group. The report
showed that fewer consumers plan to buy big appliances like air
conditioners, TVs and refrigerators within the next six months.
Retailers struggled through yet another sluggish month, with
March sales at stores open at least a year expected to fall
slightly from a year earlier, according to the International
Council of Shopping Centers-UBS tally. J.C. Penney Co. warned last
week of at least a 10 percent drop in same-store sales for March
and slashed its first-quarter earnings forecast. Retailers are set
to report final figures on Thursday.
Many analysts expect only a small sales lift starting in May
when consumers begin receiving rebate checks from the federal
government's stimulus plan, but any bump should only be temporary.
Michael P. Niemira, chief economist at the shopping center group,
believes the malaise could extend into next year.
Consumers are also increasingly concerned about inflation, with
the Energy Department anticipating that gas prices will peak near
$3.50 a gallon this spring. Many analysts believing prices could go
much higher.
Mounting debt payments are also making shoppers cut back on
stuff they can live without. U.S. families now spend more money on
debt service, absorbing more than 14 percent of disposable income,
than on food, which accounts for 13 percent, according to a Merrill
Lynch & Co. report. That is higher than during the last recession
in 2001 when 13.2 percent of household disposable income went
toward debt, Merrill Lynch said.
That shows how "deep the credit problem is in terms of its
impact on household cash flow," wrote Merrill Lynch economist
David Rosenberg.
The latest Labor Department figures didn't give consumers any
comfort. Employers slashed 80,000 jobs in March, the most in five
years and the third straight month of losses. The national
unemployment rate rose to 5.1 percent from 4.8 percent. Over the
past 12 months, wages grew 3.6 percent, slowing from about 4
percent growth early last year.
Job security is key to consumers' willingness to spend, and amid
the persistently dreary news many are taking drastic measures.
Nicely, who doesn't have any credit card debt, is so unsettled
by the softening job market that she is also now working as a
cocktail waitress. With food costs soaring, she eats almost
everything in her pantry and fridge before going back to the
grocery store.
Given such anxiety, Corlett says, retailers need to reassure
consumers that shopping at their stores makes "smart use of their
money."
Thrift stores across the country are seeing a surge in business
as shoppers shift to buying used clothes or selling items from
their closets to get extra cash. Buffalo Exchange, a second hand
clothing chain based in Tucson, Ariz., reported a 17 percent rise
in sales at established stores so far this year - the biggest gain
since the late 1980s, according to owner Kerstin Block.
Trend analyst Faith Popcorn, founder of the consulting firm
BrainReserve, sees the "stripping down" trend as positive.
"I think we are going back to the '50s decade," said Popcorn,
who expects consumers will start growing food in their own gardens
and learn to extend the life of worn garments by mending them.
Such a picture offers less comfort to Angela Durepo of
Cincinnati, who said she has cut back on buying clothes as higher
gas and food prices consume more of her income.
"I'm also not going to the movies as much or buying CDs and
other kinds of extras," the legal secretary said. "I'm mostly
shopping for groceries, hygiene products, gas for the car - things
you have to have."
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Associated Press Writer Lisa Cornwell in Cincinnati contributed
to this report.