Recession worries have put a monumental chill on holiday sales, which are on track to be the worst in at least four decades, raising the possibility of many retail bankruptcies next year.
The slump comes as the nasty turn in the economy continued to eat away at consumer wealth and confidence, with home sales hitting a 17-year low last month and home prices falling at the fastest rate in at least 40 years. The rapid decline of home values - the largest source of wealth for most consumers - is contributing to the funk that is sinking holiday sales.
After a particularly slow week before Christmas, with same-store sales declining by 0.6 percent, the International Council of Shopping Centers projected that Christmas sales will drop by as much as 2 percent from last year, in the worst performance since record keeping began in 1969. Last weekend, six in 10 Americans stayed away from the stores altogether rather than shop for presents.
“There’s very little joy left for retailers this season,” said C. Britt Beemer, founder of America’s Research Group, which tracks holiday traffic in stores. Nine out of 10 consumers say they’ve finished shopping for presents, and those who still are looking are making a bee-line for discount stores rather than higher-priced department or specialty stores.
“Wal-Mart continued to dominate shopping this year,” he said, predicting a rash of financial problems for retailers in the wake of the dismal holiday season. “A number of major names, such as Macy’s, are in trouble over the long run, and we will undoubtedly see more retail bankruptcies in the New Year.”
Retailers generate close to one-quarter of their annual sales and about one-third of their profits during the holidays.
Consumers have been spooked by the loss of more than a million jobs in the past three months, a steady drumbeat of new layoff announcements from corporations, the bankruptcy or failure of major big-name businesses, plunging home prices and the sudden loss of financing through home-equity loans and credit cards.
The dark clouds hanging over consumers caused the biggest drop in consumer spending - 3.8 percent - since 1980 in the last quarter, the Commerce Department reported Tuesday, and the rare recession for consumers is expected to continue for several more quarters to come.
“The main positive at this point appears to be the precipitous fall in gasoline prices, which is providing households with much-needed purchasing power and limiting the extent of the downturn in consumer outlays - even though most of the windfall is being saved, not spent,” said Stephen Stanley, economist with RBS Greenwich Capital.
While many economists say the consumer slump reflects fear of what the economy will bring next year, others say consumers are simply tapped out and taking a long-needed breather after spending at unsustainable rates for much of the decade.
“People need to get their personal finances back in order,” John Taylor, chairman of the hedge fund FX Concepts told a Reuters conference earlier this month.
Consumers fueled as much as 72 percent of economic growth earlier this decade by spending beyond their means and accumulating massive amounts of debt that must be pared down. He said consumers will take on less debt in the future and reduce their share of economic growth to a more sustainable 67 percent.
Shawn Kravetz, president of the Esplanade Capital hedge fund, expects a “deep and brutal” consumer recession that could result in one in 10 retail stores folding or going bankrupt.
“We don’t think that people have fully factored in this general level of malignancy going on for a year, 18 months, maybe two years,” he said.
Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, said the problem is many consumers spent to the hilt, and did not think about saving money until they lost jobs, or heard about others losing their jobs as the economy soured this fall. Now, ironically, the urge to save rather than spend is worsening the economy’s downfall.View Entire Story
By Rand Paul
Obama acts as though we no longer have a Constitution
Independent voices from the TWT Communities
First over-the-counter column approved for fast and effective relief from even your worst media-induced headache.
Contributions to the Communities Sports desk from readers.
Happiness is attainable. Morning to night. I love to teach, deal with folks that have an issue and really wish to tackle it and write.
Benghazi: The anatomy of a scandal
Vietnam Memorial adds four names
Cinco de Mayo on the Mall
NRA kicks off annual convention
California wildfires wreak havoc