Drop in consumer spending expected

first_imgNEW YORK – Consumers seem to be growing more uneasy about the economy by the day – they’re fretting about gas prices, inflation, the housing market, rising interest rates and their jobs. The question is, how anxious do they have to be before they curtail their spending at stores and malls? The latest snapshot on consumers and how they feel is worrisome. The Conference Board said Tuesday that consumer confidence fell in May, suffering its steepest drop since the aftermath of Hurricanes Katrina and Rita last year. While the decline wasn’t as big as analysts expected, shoppers are clearly more nervous about the economy. That soured optimism is expected to show up in retailers’ May sales figures, to be released today. Retailers aren’t worried only about a precipitous drop in consumer spending – even if shoppers each buy only one or two fewer items each this summer, that collective frugality could be a serious blow to business. Until now, consumers have proven surprisingly resilient despite gasoline prices that hover at around $3 a gallon. But analysts say that if gas stays high through the summer season and rising interest rates further cut into the housing market, consumers will be forced to retrench. Same-store sales, or sales at stores opened at least a year, are considered the best indicator of a retailer’s health. Overall, the nation’s retailers are expected to report a modest 3.4 percent increase in same-store sales for the month, below the 4.1 percent gain averaged from January through April, according to RetailMetrics LLC, a research firm in Swampscott, Mass. “Our sense is that if we see no break (in gasoline prices) we will see more softness,” said Ken Perkins, president of RetailMetrics. Perkins predicted retailers’ May performance will be a “mixed bag.” Discounter Target Corp., teen retailers such as Abercrombie & Fitch Co. and luxury stores should do well, but mid-price department stores such as J.C. Penney Co. Inc. could see sales slow, he said. Karl Bjornson, retail strategist at Kurt Salmon Associates Inc., said consumers are becoming more selective about how they spend their money, cutting back at restaurants and visiting stores that offer better deals. Shoppers interviewed near a Wal-Mart store in Columbus, Ohio, said they’re still buying clothing and other discretionary items, but they have curbed other expenditures. “I did away with most of my cable. I did away with my telephone at home. And I cut back on food,” said Richard Ruse of Grove City, Ohio. Two years ago, gas took up 20 percent of Ruse’s salary. Now, it eats up 35 percent of his paycheck. Ashleigh Wade of Gahanna, a suburb of Columbus, said she’s eating out less and shopping at Wal-Mart more. “I go to Wal-Mart because you can do everything in one place,” she said. “So I guess it is gas because this way I’m not running all over the city eating up gas.” The direction of retail sales may lie in the hands of the Federal Reserve, which is trying to stave off inflation while not hurting economic growth. The concern is that inflationary pressures will force the Fed to keep boosting interest rates although it has nudged rates higher 16 times over the past two years. It was clear in minutes of the Fed’s May 10 policymaking meeting that Chairman Ben Bernanke and other officials on the Fed’s Open Market Committee remain concerned about rising prices. “Inflation pressures appeared to be somewhat greater than the committee had anticipated” when it met in March, the minutes said.160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set! AD Quality Auto 360p 720p 1080p Top articles1/5READ MORE11 theater productions to see in Southern California this week, Dec. 27-Jan. 2Another concern is that solid gains in the job market – which have propped up consumer spending – could evaporate as companies look for ways to cut labor costs as they battle higher expenses. “It doesn’t help that oil prices and interest rates are up, and the stock market is down. All of that weighs on consumers,” said Stuart Schweitzer, managing director and global investment strategist for JPMorgan Asset and Wealth Management and JPMorgan Private Bank. “The last shoe to drop is the slowing in job growth, which if it hasn’t happened, will soon get started.” Schweitzer added consumer spending slowdown has only just begun, but it has “a lot further to run.” Wal-Mart Stores Inc., the world’s largest retailer, offered a lackluster May sales report, tempering the sales outlook for other merchants. The Bentonville, Ark.-based discounter, blaming higher gasoline costs for hurting its core low-income shoppers, estimates same-store sales will rise a modest 2.3 percent. That’s below the 4 percent gain the discounter averaged from January through April. last_img