Retail spending dips, crimping the economy

Rising energy prices and slow job growth make buyers cautious as nation heads into crucial holiday shopping time.

Retail executive Ellen DeMaio watched last month as mother nature made consumers into adventurers from Florida to Washington State.

"Hurricanes, tornadoes, volcanoes," says the senior vice president at Avenue, which has 500 stores around the nation. "October has to be better."

Her sentiment is being echoed by retailers nationwide who are hoping that consumers return to their normal shopping habits in time for the critical holiday period.

But getting Americans to open their wallets will be a challenge: The news is filled with stories about soaring energy prices, and the latest data on the jobs front indicates business is reluctant to hire new workers. It probably doesn't help that Democratic candidate Senator John Kerry is calling attention to the economy's weak spots and introducing yet another element of doubt in some consumers' minds.

"The election keeps everything up in the air: It's a wild card on top of threats of terrorism and rising oil and food prices," says Doug Fleener, president of Dynamic Experiences, a retail consultant in Lexington, Mass., and formerly an executive with Bose. "The big question is, how far up the income scale will the problems affect [people]?"

Hitting the middle class

So far, the major impact seems to be on lower- and middle-income families. This showed up in the September sales of Wal-Mart, which reported an increase of only 2.5 percent.

"Now that fall is here, consumers are paying more attention to forecasts of higher heating bills," says Richard Curtin, director of consumer surveys at the University of Michigan in Ann Arbor.

Home heating bills could absorb a considerable amount of people's disposable income. Heating-oil prices are now up by more than 50 cents a gallon compared with last year. Natural gas prices are up about 15 percent. Propane prices, too, are substantially higher.

Analysts are also quick to point out that September, traditionally a slow month in retailing, was also beset by some unusual circumstances. For one thing, the Southeast took a pounding from hurricanes. "If you have an issue with fixing your roof, you are probably not going out to buy a plasma television set," says Scott Krugman of the National Retail Federation in Washington.

A mediocre job market has also hurt retailers. Last week, the Labor Department reported that only 96,000 new jobs were created in September. For the economy to keep even with new entrants in the labor market, it must create 150,000 new jobs a month.

"Jobs are important to the economy since it doesn't have the benefit of mortgage refinancing or a tax cut," says Richard DeKaser, chief economist at National City Corporation in Cleveland.

But Mr. DeKaser also points out that there are some positive signs on the labor front - hours worked and earnings growth are continuing to rise. "It's income growth that really drives consumer spending," he says.

That may be why some retailers report their businesses are doing just fine. Ms. DeMaio saw September sales at Avenue rise by 6 percent, despite the weather issues. She says women are attracted by bright new colors, such as citrus green or berry-tinted.

"Sometimes when things are tough and uncertain, people need a lift and they get it when they go out and buy a soft new V-neck in a beautiful color."

California clothing store

In Carmel Valley, part of San Diego, Steven Hyde is planning on opening another Go Clothing store in Tucson, Ariz. "We're starting to see a trend of people buying a little bit more," says the president of the company that mainly sells designer fashions. "We believe the economy is stronger than last year."

In Annapolis, Md., retailers at the 35th annual United States Sailboat Show, reported a brisk trade last weekend in everything from $100,000 day sailors to $29.95 t-shirts. "We've had lots of leads and contacts," says Barbara Leonard at the Sealand Technology booth, which sells $1,200 marine toilets. "On Saturday, it was a mob scene at our booth."

Many of the retailers say demand was stronger than they anticipated, and they ran out of stock before the show ended. That was the case at Papagyo, which depleted its supply of boat-show baseball caps and sold out of many of the most popular colors of its t-shirts.

"It's been a great show," says saleswoman Sandy Bower.

Forecast for holiday shopping

Whether the optimism will extend to the Christmas season is still uncertain. Early surveys have suggested sales will rise from 4 to 6 percent. "We'll have to wait until November and Thanksgiving," says Mr. Krugman.

This week the first cold snap of the season will invade the northern part of the country, which will get people thinking about woolens and fleece again.

"It's great for the apparel folks: Cooler weather and new merchandise is a natural fit," says Krugman.

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