MasterCard Study Says Consumer Spending Has Taken A Break

Michael McNamara, Vice President, Research and Analysis for SpendingPulse, observes Consumer Takes a Respite as Spending in Many Sectors Declines.

The momentum in consumer spending that was building through the first quarter, seems to be taking a breather in the second quarter of 2010, at least so far. Financial volatility in the capital markets and ongoing macroeconomic issues could account for this shadow cast over the recovery in consumer spending. Some sectors seem to be responding to specific disruptive events, such as the expiration of the Federal housing tax credits, where previously we'd noticed a beneficial "echo" effect on housing related categories such as Furniture and Furnishings.

In addition, Memorial Day occurring a week later than it did last year, could have pushed some spending into June, 2010. Nevertheless, we continue to see strength in pricing, and in most categories, we are registering solid increases in the SpendingPulse Price Index, indicating that inventories continue to be aligned to demand, and retailers have not had to return to steep discounting.

Price Wars

In response to Michael McNamara's statement "retailers have not had to return to steep discounting" I counter with Foreclosure Life Raft; Price Wars at Walmart; Electrical Demand Drops Two Straight Years, First Since 1949.

Wal-Mart, Target, Costco, others are clearly in the midst of price wars hoping to capture market share.

YouTube Commentary From McNamara

Here’s a short YouTube video with additional commentary from Michael McNamara.



Factors in Spending Respite

McNamara discusses several factors in the spending respite.

• Some Memorial Day sales falling into June instead of May. This may benefit June sales.
• Financial market volatility impacts big ticket items and durable goods.
• The end of $8,000 housing tax credits pushed forward big ticket spending items like furniture and appliance.
  

Spending Trends

Interestingly, apparel sales and footwear showed a significant decline although online apparel sales were up 20-30% depending on category.

Furniture sales were down 9% compared to a year ago. This was in spite of a mini-rush to buy housing ahead of the expiring tax credit. Perhaps we see a bump in furniture and appliance sales in June or July after some of those home purchases close, but that will be the last hurrah in my opinion.

Luxury retail spending showed an increase of 9.7% compared to May of last year. Luxury sales reflect a recovery in the financial markets as opposed to the real world job loss recovery that most experience.

Moreover, comparisons for luxury sales going forward start to get harder going forward.

Finally, McNamara notes that "eCommerce growth is moving well ahead of brick and mortar sales at +13.7% year over year". Sales tax avoidance anyone?

Expect to see more weakness going forward as housing tax credits expire and other stimulus efforts diminish just in time for the November elections.

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