Gallup: Spending Down Across Incomes; WSJ: Stores Face Discount Dilemma

Retailers hoping for strong sales after a rebound in the stock market and housing are out of luck according to the latest Gallup Poll on shopping habits. Please consider Upper-Income Spending Reverts to New Normal

In a sign that the new normal in consumer spending continues unabated, upper-income Americans' self-reported average daily spending in stores, restaurants, gas stations, and online fell 14% in November, reverting to its relatively tight ($107 to $121) pre-October 2009 average monthly range. Middle- and lower-income consumer discretionary spending increased by 7% last month but remained in its tight 2009 average monthly range of $52 to $61. Still, consumer spending by both income groups continues to trail year-ago levels by 20%, even as those comparables have gotten easier to match -- possibly dashing hopes that upscale retailers and big-ticket-item sales will do better this year.

Spending By Income Level



Spending vs. Year Ago



The hope was that the surge on Wall Street and the seeming stabilization of housing values had encouraged some upper-income consumers to abandon the 2009 spending new normal. November's results dashed these hopes, as upper-income consumers joined their middle- and lower-income counterparts in spending 20% less than they had during the financial crisis days of 2008 and returning to the relatively tight 2009 daily spending range for this group prior to October.

Spending New Normal

The year-over-year differences have declined somewhat during recent months, but much of this closure in the 2008-2009 spending gap is a result of the easier spending comparables from last year's financial crisis.

On a national level, the spending new normal suggests slower economic growth than otherwise might be expected in the years ahead.

While the spending "new normal" may not be good for the larger economy in the short-term, it may be seen as a strong positive for individual consumer households. Consumers, like their business and banking counterparts, would be well-served to de-leverage by spending less, saving more, reducing their use of credit, and thereby strengthening their personal balance sheets. While this may not provide the immediate-term returns to the economy of the over-leveraging of recent years, a financially stronger U.S. consumer implies only good things for the longer-term well being of both the U.S. and global economies.

There are more charts in the article including spending by age, geographic region, and gender. Inquiring minds may wish to take a look.

Stores Face Dilemma

Inquiring minds are reading the Wall Street Journal article Stores' Dilemma: To Deploy Discounts Now or Hold the Line.

Who will blink first: retailers or shoppers? Chain-stores are holding bigger markdowns in reserve trying to gauge how long shoppers will wait for better deals to emerge.

The standoff, which experts say could be decided in favor of shoppers as soon as this weekend, could help determine whether or not this holiday season marks the second year in a row of sales declines.

Nine of 10 people waiting to finish their holiday shopping are doing so to get discounts of at least 50%, according to a survey released Thursday by UBS and market researcher America's Research Group Ltd. A third of respondents said they are holding out for a 70% discount.

"If we don't have to do it, believe me, we're not going to do it," said Kay Krill, chief executive of women's clothing chain AnnTaylor Stores Corp. Its Ann Taylor and its Loft outlets have discount banners "ready to go" should consumers need an incentive to shop, she said.

The first week of December, typically a lackluster time in the wake of Black Friday, was particularly slow. Sales for the week ended Dec. 5 fell 18% from the prior-week period, which included Black Friday, according to market researcher ShopperTrak RCT Corp. Last year, when the recession was in full force, sales fell a lesser 14%, according to the firm, which compiles shopping traffic at malls and uses sales statistics, as well as Commerce Department figures, for its estimate.

"After solid traffic the first couple of days, it looks like the middle of August out there," said Stephen Baker, vice president of industry analysis for retail watcher NPD Group.

Attitudes Lead The Way!

Did you notice the key paragraph?

Here it is:

Nine of 10 people waiting to finish their holiday shopping are doing so to get discounts of at least 50%, according to a survey released Thursday by UBS and market researcher America's Research Group Ltd. A third of respondents said they are holding out for a 70% discount.

Consumers are not holding off buying items in expectation prices will go lower. Rather consumers are resolved to not buy unless prices are lower. It's a case of no huge bargains, no purchases. If prices don't drop, people won't shop (or at least they resolve not to buy).

Attitudes on how much people are willing to pay are leading the way, not their expectations that bargain prices will necessarily be met. If shoppers hold firm, stores will drop prices, and profit margins will shrink.

This is yet another example of how the Fed's New Improved Inflation Expectations Model is already broken beyond repair. For more on inflation expectations please see Email Exchange With The Cleveland Fed On Inflation Expectations.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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