How long will US consumers keep buying?
Rising paychecks and expected job gains could offset high heating bills and a potential credit crunch.
from the March 7, 2007 edition
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In fact, the recent stock slide on Wall Street hasn't seemed to have dented confidence much.
"Consumers still don't think there is much to worry about the [economic] expansion ending," says Richard Curtin, director of surveys for the Reuters/University of Michigan Surveys of Consumers. "They are concerned about whether it will slow down enough to diminish their job opportunities."
Mr. Curtin says individuals with incomes above $50,000 per year seem more confident than lower-income individuals. And, he says, there are pockets in the industrial Midwest where confidence has dipped, possibly reflecting the tough times in the US auto industry.
One potential cloud on the horizon for consumers could be a broader tightening of credit standards. So far, Federal Reserve surveys of senior bankers indicate a continued willingness to lend. However, on Tuesday, some Wall Street analysts were warning their customers to expect a slowdown in loan activity as market participants assess the landscape in the wake of the subprime shakeout.
If banks begin to tighten credit standards for consumers, this could precipitate a pullback, says Dennis Jacobe, chief economist at the Gallup Organization in Washington. "I think consumers will spend as long as they can keep getting easy credit," he says. "But there is now some talk about a credit crunch."
With the real estate market still weak, Mr. Jacobe says banks are beginning to reassess some of the loans they have made on the basis of rising home equity. "If there are foreclosures on home equity loans, it would send shock waves through the economy," he says.
However, most consumers still have no trouble getting a loan. But last month they did have trouble getting to the mall because of cold and snowy weather. Tuesday, the International Council of Shopping Centers blamed the weather for a 0.4 percent drop in chain-store sales for the week ending March 3. For the year, sales are up only 1.5 percent.
"From mid-January on, a retailer would like to see hot dry weather because it's the time when they bring out the bathing suits and lightweight material," says Bill Kirk, CEO of Weather Trends International, a Bethlehem, Pa. firm that advises companies on weather patterns. "Consumers don't think it's spring yet."
Mr. Kirk says many Americans will get a shock in the next few weeks when they see their February heating bills. "If people spent $150 to stay warm last February, they will be spending $300 this year," he says. "The energy bills will be off the charts."
Consumers, however, don't have to hit the malls to shop, as Justin Schaldone of eFashion Solutions can attest. In November and December his online firm was having trouble selling outerwear. But in the last two months, the company's sales rose 60 percent compared with last year's.
"We keep our fingers crossed for cold weather," says Mr. Schaldone, vice president of marketing for the Secaucus, N.J. company.
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