Business Worries That Consumers, Fretting Over Gulf, Will Delay Buying
As retailers prepare their Labor Day sales, fears are growing that consumers--worried about higher oil prices and the volatile Persian Gulf--may hold back on buying, dealing a blow to the already fragile U.S. economy.
Hard data on the public’s purchasing behavior since Iraq’s Aug. 2 invasion of Kuwait is not yet available. In interviews, some retailers and lenders reported little change from the lackluster pace of June and July.
Yet other signs suggest concern in corporate America. Consumer confidence in August took its largest drop in more than seven years, the Conference Board reported earlier this week. Sears, Roebuck & Co. and other retailers are scaling down plans to order fall and winter items.
In addition, retailers have been quick to discount fall goods, a clear signal that they are worried about business.
“Given the economic uncertainties generated by the Middle East crisis, a loss in the consumer’s sense of security is inevitable,” declared Fabian Linden, executive director of the Consumer Research Center at the Conference Board, a New York business research organization.
Any cutback in consumer purchases would be highly significant, because the economy has barely grown at all in recent months. In what would be a self-fulfilling prophecy, such a spending cutback could trigger the feared recession.
“People have a great sense of nervousness about what’s going to happen next, which should make them more cautious about their spending--and could tip the economy into a recession,” warns David Hale, an economist with Kemper Financial Services in Chicago.
A key difference between now and the oil shocks of the 1970s is that women have largely completed their move into the work force, said James E. Newton, president of Economic Perspectives, a retail consulting firm in Delaware, Ohio. As a result, the huge market for women’s career apparel is no longer growing as fast and consumer cutbacks “will hit everybody” this time.
The worries appear widespread: In a survey of 450 U.S. households shortly after Iraq invaded Kuwait, a Chicago market research firm found that 62% think this isn’t a good time for major purchases, up from 51% in July. The number expecting prices to rise in the next few months almost doubled to 50% from 26% in July.
Consumers are telling themselves, “I want to hold back. I want to be cautious,” said George Rosenbaum, president of Chicago-based Leo J. Shapiro & Associates, which conducted the survey.
At the same time, it is difficult to separate the concerns arising from the Middle East crisis from earlier signs of a faltering economy. “Like other retailers in the current environment, we’re just being prudent in our buying plans,” said Mary Jean Houde, a spokeswoman for Sears.
The prevalence of pre-Labor Day sales promotions for fall attire appears to be a sign of weak consumer interest, observed Alan G. Millstein, publisher of Fashion Network Report, a trade publication in New York. He also noted a lack of major fashion trends as another clue to a lackluster buying climate.
“If it was going to be a poor Christmas, this can make it a worse than poor Christmas,” Millstein said.
Automobile dealers nationwide reported sluggish sales of domestic cars and trucks during August, but attributed the decline to an overall industry sluggishness rather than Persian Gulf tension.
“I would say, surprisingly, so far we’ve seen few signs of it having an impact on sales,” said Tom Webb, chief economist with the National Assn. of Automobile Dealers.
Domestic auto sales of 247,000 units reflected a decline of 18% during the first 10 days of August compared to the same period last year, and volume for the second 10 days fell 5% to 261,000 units, Webb said.
At Ted Jones Ford in Buena Park, sales manager Mel Marquec said the dealership sold about 280 cars in August compared to 300 in July, but he hesitated to attribute the decline to the Middle East. “If sales were off 50 to 75 cars, then I’d say it had a noticable effect,” he said.
Some firms may actually be benefiting from the jittery climate.
Robert W. Crawford, president of the Breuners Furniture Rental chain, said some of his 40 stores in California and Nevada picked up rental orders last month from customers who originally planned to buy new office furniture.
These customers, Crawford said, changed plans apparently because they were “concerned about obligating themselves” to a big investment in new furniture. In August, Breuners’ office furniture rentals were up 11% from the year-ago month.
A spokeswoman for Marshalls, a big off-price clothing chain based in Andover, Mass., said her store managers haven’t noticed any drop in business since the Aug. 2 invasion. Still, she noted, business has been miserable for many retailers ever since late last year.
“Around New England, stores are now slashing prices right and left, competing for the back-to-school dollar,” said the spokeswoman, Karin Whiting.
But the effect is uneven. At Beverly Hills-based Great Western Bank, “our loan volume has remained very good in August, as strong as it was in May, June or July,” said Ian Campbell, a spokesman for the Beverly Hills-based thrift. He said a sustained increase in interest rates could take a toll on loan volume.
With a little imagination, however, some can envision world events acting as a plus for the U.S. economy.
The crisis can serve as a powerful symbol, with its outcome affecting overall confidence for better or worse, said Bernard Codner, director of the Institute of Retail Management at California State University, Los Angeles. “If America comes out of this a clear winner, it could pump people up psychologically so much that it could give a real spurt to the economy,” he said.
Times staff writer Stuart Silverstein contributed to this story.
