New 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 buy only one or two fewer items each this summer, that collective frugality could be a serious blow to business.
Until now, consumers have proved surprisingly resilient despite gasoline prices that hover 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. Another 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 that consumer spending’s slowdown has only begun and has “a lot further to run.”
Wal-Mart, 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 that same-store sales will rise a modest 2.3 percent. That’s below the 4.0 percent gain the discounter averaged from January through April.
Same-store sales, or sales at stores open 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 research firm RetailMetrics 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 like Abercrombie & Fitch Co. and luxury stores should do well, but midprice department stores such as J.C. Penney Co. Inc. could see sales slow, he said.
