With the year only half over, economists are already expressing concern that the holiday shopping season is shaping up as disaster.
The Associated Press cited soaring gas and food prices, a slumping housing market and a falling stock market as having depressed consumer confidence, raising fears that shoppers will pull back even more in the critical months ahead.
“With consumer spending accounting for two-thirds of U.S. economic activity, the economy's health is at stake,” the A.P. reported. “While Americans have cut back on nonessentials like clothing, spending has remained fairly resilient despite their darkening mood. But analysts worry that once the short-term benefits of the federal stimulus checks fade, shoppers will retrench further — possibly tipping the economy into a recession.”
The A.P. referred to a number of downbeat reports released last week — one on consumer confidence, the other on the housing market — that show shoppers are under increasing strain. The Conference Board's Confidence Index fell for the sixth month in a row to the lowest level in 16 years, while the measure that assesses how consumers feel about the economy over the next six months dropped to the lowest point since the private research group began doing the surveys in 1967.
Meanwhile, the Conference Board reported that shoppers are so anxious that fewer people plan to buy big ticket items like TVs and appliances, a bad omen for Christmas giving.
The Standard & Poor's/Case-Shiller home price indices and the Office of Federal Housing Enterprise Oversight index showed record year-over-year drops in April, a signal that the housing slump is not only deepening, but encompassing markets that were once holding their own.
Finally, American Express warned last week that consumer credit is worsening faster than it had anticipated in June as the U.S. economy continues to falter.
“People are feeling poorer and that means less spending. … The holiday season will be bad — if not worse than the last year,” Bernard Baumohl, managing director and chief global economist at The Economic Outlook Group LLC, told the A.P. He added that while consumer confidence and spending don't move in tandem on a month-to-month basis, he believes that the persistent and precipitous fall in confidence will affect spending within three to nine months.