A fourth straight monthly decline in consumer confidence is sending jitters through the economy, causing concern among everyone from home builders to airlines to retailers hoping for a strong holiday selling season.
But economists cautioned that the numbers don’t mean the wheels are falling off the 7 1/2-year-old economic expansion. The declines in confidence are coming off an all-time peak in June, and consumers still report they’re feeling pretty good about their own financial situations.
It’s the future that consumers say they are concerned about. And that’s hardly surprising, experts say, given the barrage of scary headlines about the Asian financial crisis, the stock market’s huge swings, the potential for presidential impeachment and, possibly, an impending U.S. recession.
In its monthly report, the Conference Board reported Tuesday its closely watched index declined to 117.3 this month, the lowest level in almost two years, from September’s 126.4.
The four consecutive declines is the longest negative streak for the consumer sentiment index since July-October 1994.
Still, October’s confidence number is well above a recession level of 80 to 90. And sentiment in the Midwest remained relatively buoyant at 130.7, the highest among the nine regions tracked.
“The key word here is context. We’re still near record highs, although we’re clearly seeing a trend off the euphoria of this summer,” said Diane Swonk, deputy chief economist at Bank One Corp. in Chicago.
The decline in consumer confidence had been expected. On top of economic and political concerns, many people were hit with big paper losses when they opened their quarterly 401(k) statements this month because of sharp declines in stocks during August and September.
At the same time, though, most Americans feel fairly secure about their finances and job prospects, according to the preliminary October results of another closely watched survey, the University of Michigan’s consumer sentiment index.
A record number of consumers said they were considering buying a home, and the number of prospective car buyers hit a decade-long high. But existing-home sales slipped in September for the second month in a row, and consumers are insisting on hefty rebates or other incentives on new-car sales.
There’s no denying that many consumers are feeling more cautious than they did last spring. And that translates into jitters for the nation’s retailers as they gear up for the most important sales months of the year.
“This bodes poorly for retailers, no doubt about it. I don’t think anyone will do really well,” said Anthony Luizzo, professor of business and economics at Wilkes University in Wilkes-Barre, Pa.
Luizzo is predicting 1998 holiday retail sales will rise only 2 percent from 1997. The National Retail Federation, the industry’s largest trade group, is more optimistic, predicting a 5 percent to 6 percent sales increase at general merchandise, apparel and home furnishings stores.
If the holiday season is a disappointment, those hardest hit are likely to be higher-end retailers such as Neiman Marcus Group and Saks Inc., where shoppers are most sensitive to stock portfolio gains or losses, retail consultants agree.
Also feeling the pinch could be moderate-priced department stores such as Sears, Roebuck and Co. and J.C. Penney Co., which have struggled with sagging sales in recent months.
Just last week, Sears Chief Executive Arthur Martinez told analysts that value-conscious customers were migrating away from Sears to discounters.
In fact, all this economic anxiety is great for discounters, such as Wal-Mart Stores Inc., Kmart Corp. and Dayton Hudson Corp.’s Target stores. The 1998 holiday sales survey by the International Mass Retail Association found consumers say they are planning to spend an average $828 on gifts this year, up slightly from $813 last year.
Seventy-five percent of people surveyed said they plan to shop at discount stores this year, about the same number as last year. But only 44 percent said they plan to shop at department stores, down from 49 percent last year.
That could be bad news for the likes of Marshall Field and Carson Pirie Scott & Co. But so far, Field’s President Dan Skoda sees no sign of weakening.
“Our cashmere, jewelry and fur businesses are all trending well. Our indicators say those would be the first to fall off,” Skoda said last week.
Still, Field’s is being conservative about holiday sales, figuring on only a low single-digit sales increase during December.
Retailers aren’t the only ones concerned about a possible slowdown in spending. The nation’s two largest air carriers, United Airlines and American Airlines, recently warned that growth rates may slip next year because of deteriorating economies overseas.
On Tuesday, the Travel Industry Association of America added to the gloom, predicting that growth in travel will slow next year, rising only 1.6 percent, to 1.32 billion trips, far short of the 3.7 percent growth forecast for 1998.
Economic worries are causing a growing number of people to express concerns about traveling, said Susan Cook, senior vice president for the Washington-based industry group.
A survey of business travel by American Express Co. detected a similar softening.
“We have seen international travel slow down and business travel prices drop in Latin America, Asia and Russia,” said Kim Lewis, vice president and general manager of multinational regions for American Express Travel Related Services, a division of American Express.
The same deflationary trend may be taking hold in the lodging industry, where some experts are predicting hotel costs will drop by as much as 4 percent next year as a big chunk of new rooms come onto the market.
Lodging industry forecasts show that occupancy rates could drop below 65 percent in some cities across the U.S.
