Consumer Spending Takes Toll on Retailers
Retailers may not get the boost they are looking for after reports surfaced that consumer
spending increases were offset by higher prices. Inflation-adjusted consumer spending
declined 0.2% in June, according to the Commerce Department. This means that companies
like
Wal-Mart
Stores (NYSE: WMT) and
Target
Corporation (NYSE: TGT) may not have realized the benefits of the tax rebates,
which have instead flowed into the hands of mining and energy companies behind the
higher costs.
Inflation rose 0.8% this month, which is the largest increases since February 1981's
reading of 1 percent. The problem the government now is that its tax rebate program
is failing and the Fed may be forced to raise rates, which could further erode the
credit problems in the U.S. The Fed is expected to keep rates unchanged, but pressure
by the government to make the rebate programs work may force them to hike rates at
least a little to ease inflation.
Retailers are now left between a rock and a hard place. A rise in interest rates would
likely reduce consumer spending in the long-run because loans would be more expensive.
However, it would enable them to enhance their profit margins since the cost of goods
would presumably move lower. However, if interest rates do not rise, inflation will
remain a pressure on margins and consumer spending may take awhile to turn around.
In the end, it may be awhile before retailers recover.
Related Companies
Target Corporation (TGT)
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