Sunday, May 11, 2008

Consumer outlook remains guarded

The past week brought news that suggested more of the same for the broad U.S. consumer market. Consumer debt, not including mortgage related debt, rose considerably more than forecast in March indicating that consumers are stepping up their reliance on their credit cards and that the myriad incentives and discounts offered by auto makers are enticing customers into the showrooms, many to trade in their gas guzzlers for more efficient models. April sales figures for retailers showed no significant drop off in spending from already depressed levels, but did show an increasing bifurcation toward the leading discounters, Wal-Mart and Costco as well as the smaller BJs and Freds, and away from the mall based Gaps, Limiteds, and department stores. The more popular teen based stores such as Aeropostale and American Eagle had sales gains and seem unfazed thus far. If they turn down, watch out. Home prices are now predicted to decline, in the aggregate, by 9% this year with inventories remaining high and the pace of foreclosures not slowing.

What this latest data suggests is more or less as expected. What the data does not do, of course, is highlight the regional and economic class impacts of this continued financial stress that could create the next crisis, whether media driven, politically convenient, or real. It does at least show that consumers are making some rational choices in their efforts to stay on track and that teen's priorities have not changed. Higher credit card debt is understandable and not yet at an overly alarming level, a threshold that will be watched closely.

By historical standards, overall employment remains at reasonably good levels. The financial system has retrenched and can hardly pull back more. The stronger companies will ease up and begin an effort to build market share at the expense of the overly extended firms. Summer should bring more of the same and the earliest signs of stabilization will not come until September or October. Let's just get there.


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