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Thursday, March 28
The Indiana Daily Student

Experts question strength of holiday spending

Turbulent trends in economy make for fuzzy forecasting

NEW YORK -- This isn't the time for consumers to lose their holiday spirit. The economy needs ho-ho-ho, not ho-hum.\nAll eyes this Christmas won't just be on what toy turns out to be the year's biggest hit. As much focus, at least on the part of economists and investors, will go to how much consumers actually spend on holiday gifts.\nThat's because there is some worry that shoppers are losing steam and won't keep up their buying spree of recent years. Should that happen, it could dampen the economy's upswing.\nThrough three years of economic and stock market turbulence, consumers never held back. Houses, cars, appliances -- you name it, they bought it. And all their spending, which accounts for two-thirds of U.S. economic activity, helped stem the economy's slide.\n"Ever-willing consumers have been the workhorses of the economic expansion thus far," said Richard J. DeKaser, chief economist at the Cleveland-based financial holding company National City. "Tax cuts and low interest rates were the lures, and few failed to take the bait."\nBut their next move is a lot iffier.\nEven though the economy appears to be strengthening -- with a blistering 7.2 percent growth in the third quarter and job creation now the strongest in three years -- that doesn't mean all consumers are still raring to go.\nFor one thing, since they've been buying just about everything they've wanted in recent years, they may not need much else.\nAnd there are many parts of the country where times are still tough.\nNothing reflects that more than the view coming from Wal-Mart, which raised fears last week that the holiday season might not be as strong as many in the industry have been expecting.\n"I don't think customer spending is slowing, but I also don't see the strength that many of you in the investment community appear to see," Wal-Mart chief executive Lee Scott said in a recorded message to analysts and investors, according to a transcript provided by CCBN StreetEvents.\nMost importantly, Scott said Wal-Mart's customers still appear to be living paycheck to paycheck, timing their purchases around the time they get paid, and are going for the least expensive products within categories.\nWhat Wal-Mart says matters, given that the world's largest retailer is the dominant merchant in towns across the United States.\n"We continue to see evidence that the lower-income customer is not enjoying the pickup in spending that the middle-income and higher-income customer is," said Gary Balter, a retail analyst at UBS Investment Research.\nThere is already evidence that consumers have a tighter grip on their wallets. There were back-to-back declines in monthly retail sales, which fell by 0.3 percent last month and 0.4 percent in September, according to the Department of Commerce.\nThe good news is that while consumer spending fades a bit, there is clearly a pickup taking place in other parts of the economy. Most importantly, business investment is on the rise again, after a long, steep decline.\nStill, there is no telling if that can make up for shoppers' lost dollars. A pullback may not be as devastating now as it would have been before, but it still could hurt the economy's pace.

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