Time to Bet Against the U.S. Consumer?

Monday, August 29, 2005 | 02:18 PM

For at least the past decade, anyone who has bet against the resiliency and unending spending capacity of the U.S. consumer has decidedly lost the wager. Even through the recession of 2000-01, they hardly slowed their profligate ways. 9/11 managed to create a pause in spending - at least for a short time - but it was more than made up for in the ensuing quarters.

Indeed, the careers of Economists who have declared the U.S. consumer to be tapped out litter the countryside like corpses after a war.

There are early signs, however, that taking the other side of this bet is no longer a sure thing. We see a variety of factors suggesting that the consumer, while not yet exhausted, is slowly but surely moving in that direction. While it is premature to declare the American consumer “shopped out,” I suspect it is now quite late in the cycle. Barring a significant improvement in economic fortunes, including robust job creation and increased personal income levels, that exhaustion now looks all but inevitable.

First up: Energy. Despite the same economists telling us how much smaller energy is as a percentage of GDP than in the 1970s, high-energy prices still hurt spending. How bad are the gas pains? Well, if the increase in drivers using credit cards to manage gas costs is any indication, pretty bad.

Weak back to school sales are another sign of Personal Spending slowing. The National Retail Federation noted the “dip,” blaming (of course) energy prices. This is consistent with an Opinion Research Corp. (Aug. 18-21) survey cited by ICSC.org. It showed that 58 percent of households are reducing their discretionary spending on clothing, shoes, jewelry and consumer electronics, as well as restaurants, spa and beauty services, and other nonessential purchases.

The recent drop in Consumer Confidence also is energy related. The danger, according to Oxford Analytica, is that “persistently low confidence undermines consumer spending.”

Further, its not just the Wal-Mart shopper who feels the pinch; Even high end consumer electronic sales are expected to dip next year.

My best guess -- and its only a guess -- is that the combination of energy prices combined with the end of the easy refi money will be a serious one two punch. Add to that big expenditures for discounted GM vehicles, and you have the makings of a wobbly consumer.

The key tell: Look to see how this holiday shopping season is. If its more difficult for retailers than expected, we will have unequivocal confirmation that the consumer has finally exhausted themselves.

Monday, August 29, 2005 | 02:18 PM | Permalink | Comments (21) | TrackBack (1)
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» CAUTION SETS IN from Peaktalk
Earlier today it was reported that US Consumer Confidence is up: Consumers reassured by the strengthening job market stayed optimistic in August despite the surging price of gasoline, giving a widely followed measure of consumer confidence an unexpecte... [Read More]

Tracked on Aug 30, 2005 3:36:20 PM


About use of credit cards to purchase gasoline; I've read several stories about an increase in the number of 'drive offs' (people buying gas and then scampering off without paying) prompting more service stations to demand prepayment. That may contribute some to an increased use of credit cards, but still it just stands to logic that people have to make adjustments somewhere and falling back to the credit card probably comes to mind first.

Posted by: frank | Aug 29, 2005 6:49:36 PM

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