Consumers Stay Away in May
Posted by Michael A. Kamperman on June 6, 2009
Most of the retail data for May shows the consumer is keeping his wallet in his pocket and her purse snapped shut. Auto sales remained abysmal and declined over 30% across the board. Sales from retailers were generally weaker than expected, with Target down 6%, and Costco down 7% when compared to year ago levels. What is important to note is oil was over $100 per barrel last year. Sales of gas guzzling light trucks fell off a cliff. Gasoline prices that were over $4 per gallon left consumers with less discretionary income to shop at the stores. The year over year comparisons are starting to get easier, because we are comparing them to already weak numbers. Still the slide continues. The decline in auto sales is of course partially due to extremely tight credit markets for auto loans.
What is particularly troubling about the May reports from the nation’s largest retailers is that the reduced payroll withholding that is part of stimulus package went into effect in April. The average worker took home over $30 per month more in income during May when compared to March. Additionally, the stock market rallied and has stayed back over 8,000. The most recent consumer confidence reports were up. The media has had many positive economic stories about how disaster has been averted and the worst may well be behind us. So where is the spending?
Deflationary pressures are partly to blame. Costco has specifically mentioned deflationary pressures affecting its overall sales. However, deflation is not the only reason sales are shrinking. Recent data indicates the savings rate has risen above 5% as consumers change from their spendthrift ways. Rising unemployment is also a key factor. However, a new and predicted factor could be biting the economy. The decline in sales from the stores could signal banks are cancelling credit cards and cutting credit lines for consumers. For a typical middleclass consumer that has seen her home drop in value, her 401(k) drop in value, and her colleague get laid off, having a credit line on a credit card cut in half is another shock to her sense of financial well being. People consider their credit lines to be part of their cash resources to manage monthly cash flow, make larger discretionary purchases, and most importantly as a backup for unexpected cash calls such as health care, a blown transmission, an out of town funeral, or the loss of their own job. Without access to credit the consumer must save cash to provide a cushion in case of an emergency. The shocks to the consumer keep coming. The May retail numbers should be we all we need to declare that the stimulus plan is too small and much more needs to be done to resuscitate the economy.
