NEW YORK -- Early this year, Mike and Kelly Weiss, buoyed by a general sense that the economy was improving, purchased a house in Kensington, Md., and filled it with furniture. They also planned to buy a second car, and do some major home renovating.
But with the recent news of accounting scandals and terrorist alerts that have pummeled the stock market, and with corporate layoffs continuing, the Weiss' confidence about the future has quickly diminished. Although Mike Weiss believes he has job security, he is now re-evaluating his finances.
"I had been under the impression that things were going to turn in the third quarter. But I don't think that is the case anymore," said Weiss, a publicist. "It is very troublesome."
Now, he and his wife have delayed redoing the kitchen and other expensive home projects, and have held back further investing in the stock market, except for funding their IRA accounts. He's eating out less, resorting to bringing brown bag lunches to work.
The change in the Weiss' spending behavior bodes poorly for retailers, who fear the latest spate of bad news will make consumers retrench even more, stalling the economic recovery that has already lost momentum. In fact, merchants, who have already carried lean inventories since last spring, said such uncertainty is making planning for the fourth quarter and the holiday shopping season more difficult.
Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, a consulting firm, expects retailers and suppliers to remain conservative until "there is some sort of sustained period of optimism."
Scott Baskin, president of Mark Shale, a Chicago-based upscale men's and women's clothing chain, had counted on an improving revenue picture to continue throughout the rest of the year, but lately he's seen only choppy sales.
"There was more certainty earlier in the year," said Baskin. "Now, all of the sudden the stock market tanks, the Mideast crisis blows up. ... It is never good for consumer spending."
Hal Upbin, chairman, president and CEO of apparel maker Kellwood Cos., said, "We are not getting the uptick in the economy that we hoped to see by now. ... Retailers continue to be cautious and are ordering later."
Kellwood, whose major customers include J.C. Penney Co. Inc. and Wal-Mart Stores Inc., is still meeting its sales forecasts, however.
Two recent economic reports show that shoppers are becoming more bearish about prospects for a recovery, and are saving more and spending less.
Consumer confidence in the economy, as measured by the Conference Board, slipped in June to a four-month low. Economists fear confidence will decline further in the months ahead, making consumers less willing to spend, and companies even more cautious about capital investments and hiring. The pace of job layoffs appear to be stabilizing, but the labor market continues to be sluggish
Furthermore, the Commerce Department reported in late June that consumer spending slipped 0.1 percent in May, although wages, interest and government benefits increased 0.3 percent. That meant the nation's personal savings rates -- savings as a percentage of after-tax income -- rose to 3.1 percent. Such a rise in personal savings, while good for a consumer's long-term financial well-being, could hurt the economic recovery.
The big bright spot is that interest rates remain low, which could motivate shoppers to spend more and also make businesses more inclined to increase investment in new plants and equipment. Low interest rates have fueled a booming housing market, which could mean strong sales of home-related items.
Analysts see other positive trends.
Carl Steidtmann, chief economist at Deloitte Research, and others believe continued low interest rates will also spark another wave of mortgage refinancing, which will free dollars that can be spent at stores.
In addition, many economists believe that "the wealth effect," or value increase, that consumers are enjoying from their homes might be underestimated.
In fact, Weiss said he feels encouraged that his house in Maryland has already increased in value by 15 percent since he purchased it.
It does make you feel better about your situation. It makes you sleep better at night," Weiss said. "
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