Interesting article. Doesn't reflect the realities of SZ, of course [86]
http://www.nytimes.com/2008/01/14/bu...hp&oref=slogin
Americans Cut Back Sharply on Spending
Americans Cut Back Sharply on Spending
Strong evidence is emerging
that consumer spending, a bulwark against recession over the last year
even as energy prices surged and the housing market sputtered, has
begun to slow sharply at every level of the American economy, from the
working class to the wealthy.
The abrupt pullback raises the possibility that the country may be
experiencing a rare decline in personal consumption, not just a slower
rate of growth. Such a decline would be the first since 1991, and it
would almost certainly push the entire economy into a recession in the
middle of an election year.
There are mounting anecdotal signs that beginning in December
Americans cut back significantly on personal consumption, which
accounts for 70 percent of the economy.
A raft of consumer companies ? high-end stores like Nordstrom and Tiffany, and middle-of-the-road ones like Target and J. C. Penney ? reported a pronounced slowdown in growth last month, and in several cases an outright drop in business.
American Express
said that starting in early December the growth in the rate of spending
by its 52 million cardholders, a generally affluent group of consumers,
fell 3 percentage points, from 13 percent to 10 percent, the first
slowdown since the 2001 recession.
And consumer confidence, an important barometer of economic health, has plunged. Andrew Kohut, president of the Pew Research Center, says consumer satisfaction with the economy has reached a 15-year low, according to the firm?s polling.
Even wealthier consumers, who were seen as invulnerable to rising
gasoline prices and falling home values, are feeling the squeeze.
?People are clearly concerned that we are headed into a recession,?
said Stephen I. Sadove, the chief executive of Saks Fifth Avenue, the
upscale department store whose runaway growth throughout much of the
year slowed markedly in December.
Gia Trumpler, 37, a travel consultant who lives in Manhattan, shops
at luxury chains like Saks. But she is trimming costs where she can by
bringing lunch to work from home, rather than eating out. ?Everything
just feels more expensive to me now,? she said, including the cost of
heating her apartment this winter.
There are plenty of recession naysayers. Average hourly wages and
salaries have not fallen, and some economists argue that unless ? or
until ? that happens, consumer spending will hold up despite widespread
economic unease. According to these economists, what happened in
December was a temporary blip.
?Incomes have managed to hold up,? said Chris Varvares, president of
Macroeconomic Advisers, an economic forecasting firm, who added that
the data to date did not support the view that a recession was
inevitable.
Even in tough economic times Americans rarely reduce their
consumption, preferring instead to slow the growth in their spending.
Since 1980, they have cut spending in only five quarters ? a total of
15 months ? most of them in the depths of a recession. The 2001
recession passed without a cutback in consumer spending.
Only once before, in 1980, did consumer spending fall during a presidential election year, helping Ronald Reagan in his campaign against Jimmy Carter, the Democratic incumbent.
Official statistics do not yet show that consumer spending has
dropped, but they do suggest that in late 2007, it slowed in areas like
automobiles, furniture, building materials and health care, said Mark
M. Zandi, chief economist at Moody?s Economy.com.
Fresh evidence of a pullback is pouring in from many quarters as
Americans confront the triple threats of higher energy costs, falling
home prices and a volatile stock market.
Perhaps the strongest barometer over the last 30 days is the
performance of the country?s big chain stores. December turned out to
be a blood bath for retailers at every rung on the economic ladder,
with sales for the month growing at the slowest rate in seven years.
Sales at stores open at least a year, a crucial yardstick in retailing, plunged by 11 percent at Kohl?s and 7.9 percent at Macy?s, compared with last year.
Chains that cater to the middle and upper classes, which have
benefited from years of trading up ? when customers splurge on select
expensive products ? struggled as well. Coach,
the leather goods maker, said sales of its popular handbags had become
sluggish, prompting the company to issue rare coupons to drum up
business.
?This is the real deal ? consumers are slowing down across the
spectrum,? said David Schick, a retail analyst at Stifel Nicolaus.
But it is the trouble at the highest reaches of retailing that has
economists most worried about a recession. Over the last year, even as
low-wage and middle-income consumers have cut back, the wealthy have
spent freely, keeping high-end chains insulated from the economic
turbulence.
That started to change in December, as shoppers held off on buying
$300 designer shoes and $500 dresses. For example, store sales fell 4
percent at Nordstrom, the high-end department store.
And Tiffany, the upscale jeweler, said the number of purchases at
its stores dropped last month. In an interview, its chief executive,
Michael J. Kowalski, said that even if the wealthy remain so at least
on paper, their economic anxiety is taking a toll.
?It?s a reaction to the general economic uncertainty everyone is
feeling,? he said. ?There are housing price declines and financial
market instability. There is a lot of caution out there, and it?s
reflected in jewelry sales.?
At the same time, the number of overdue payments on American Express
cards is surging, the company said ? and this among well-heeled
cardholders who charge up to $12,000 a year, on average, on each card.
American Express has called some cardholders in the last few weeks to
ask if they will have trouble paying their bills.
?We are seeing a correlation with housing prices,? said Michael
O?Neill, a spokesman for American Express. ?The falloff in spending is
everywhere in the country, but it is greatest in those areas like south
Florida and California, where home prices have fallen the most.?
The big exception is gasoline. American Express and the Consumer
Federation of America say that consumers are buying just as many
gallons as ever, but paying more for them, and that has forced cutbacks
in other purchases. Gasoline prices usually drop after the summer
driving season, but this year they shot up, from $2.85 a gallon on
average in September to $3.07 in December and $3.15 in the first week
of January.
A similar trend is evident in the cost of natural gas, electricity
and home heating oil. ?We built these big houses in the suburbs, which
need a lot of energy to stay warm and a car to go shopping,? said
Stephen Brobeck, executive director of the Consumer Federation. ?And we
can?t change that quickly.?
The impact of rising gasoline prices ?is just profound on middle-
and lower-income families,? said Mr. Kohut of the Pew center. ?Our
surveys are showing one of the lowest levels of satisfaction with
national conditions in any recent presidential election year. You have
to go back to 1992 to get a lower number of people saying the national
economy is excellent or good.?
The nation was recovering from recession that year. Consumer
spending had contracted in two separate quarters in 1991, and while
economic growth was gradually accelerating as Bill Clinton and George H. W. Bush
sought the presidency, the Clinton camp famously posted a sign in its
campaign war room proclaiming, ?It?s the economy, stupid.?
There are some bright spots now in consumer spending. Sales of
sports gear and electronic gadgets ? particularly G.P.S. navigation
devices and flat-panel television sets ? have risen over the last three
months. To Stephen Baker, vice president for industry analysis at the
research firm NPD Group, that suggests there is still enough purchasing
power for people to buy what they really want.
?We probably would not have seen strong sales for electronics
products that people really want if the overriding issue was economic,?
Mr. Baker said.
But not everyone is splurging. Jinal Shah, 22, a college senior in New York, said she wanted to buy the popular Nintendo
Wii video game system as a gift for herself this holiday season, but
had second thoughts because of the $250 price tag. She ended up not
purchasing it.
?You have to make choices,? she said. ?I get the Wii, or I go out more. I am just much more aware of the tradeoff now.?
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