I spoke to several couples in the last few weeks who cancelled plans to go out in order to save a few bucks before spring break. They have no rational reason to fear for their income, but in these uncertain times, their mindset is important. Who else is influenced by feelings of uncertainty?
By staying home, these couples hurt restaurants, nightlife, and obviously taxi drivers. Let us look at the bigger and more typical consumer chain of events. Had a couple gone out rather than stay in, they would have hired a baby sitter. This young woman, usually a college student (in our world), would have ordered out for dinner with the kids providing a restaurant with business. Without her Saturday night job, she will have less disposable income and perhaps a feeling that less work is coming. Her reaction: one less download from iTunes, one less trip to H&M or the mall, one less candy bar or fewer searches on Google for that perfect pair of shoes. Each action has a cumulative effect. Her biggest action based on this event? It is talking about the cancelation By talking about her lost income, the babysitter will create more uneasy people.
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This chain reaction is normal, yet with media hype, even these innocent college kids are talking the "R" word fueling the fire further.
Not spending is not limited to consumers or college kids right now. According to data compiled by S&P, corporate America is sitting on $611 billion in cash, a near record. That cash should be invested in new products, infrastructure upgrades, marketing or strategic acquisitions. But companies right now are acting like consumers.
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"There's no denying that shoppers are determined to keep a tight lid on spending, and we expect retail sales to generally remain weaker and deteriorate through the rest of the year," says Frank Badillo, senior economist for TNS Retail Forward, a Columbus, Ohio-based retail consultant.
In its most recent ShopperScape survey, the data from TNS demonstrates that the cutting back trend is strongest among lower income households. 31% of down-market shoppers in its survey say they plan to spend less than last year, compared with 28% of middle market households, and 25% of affluent households; all these cut backs begin with high gasoline and food prices. These numbers of planned cut backs are astounding and can push us towards a recession by themselves.
Yesterday retailers posted dismal same store sales across numerous categories sending stocks in the sector down. In February, only a few discounters benefited. Wal-Mart (WMT) reported same-store sales results that outperformed the market gaining in the US 2.5% over the prior year. Sales were also up at Target (TGT), which reported same-store sales up 0.5% slightly beating its forecast.
Floyd Norris over at the NY Times (NYT) published: Aversion to Risk Deepens Credit Woes. This connects the tight wallet mindset to the credit markets.