Holiday debt may inhibit spending
Americans shopped hard enough during the holidays to give stores a boost in sales over last year -- with many purchases charged to credit cards.
That’s not unusual. But in November, according to government data, revolving consumer debt climbed at an annual rate of 11.3%, the most in six months.
That means people will be struggling to wipe away debt even as the economy is relying on them to help it steer clear of a recession.
“It’s just a matter of time before we see more pronounced weakness in consumer spending,” said economist Sung Won Sohn, former chief executive at Hanmi Bank in Los Angeles.
Retailers, scheduled to release their December sales results today, probably saw a tepid sales bump of about 1% at stores open a year or more, according to two estimates this week.
And as the new year gets underway, shoppers like Carol Wade of Buena Park are reining themselves in.
“I found that my spending was a lot more on credit cards,” said Wade, who works in marketing for the Gas Co. “So now I have to cut back so I can pay it off.”
Eddie Reay will be doing the same, whittling away at the $15,000 or so he owes on various cards.
“The credit card debt is the hardest debt to escape from,” said Reay, a resident of Woodland Hills and a project manager for an architectural firm.
Many Americans will be redirecting or curtailing their spending as they worry about an expanding array of problems, including the weak housing market, tighter credit, slower job growth and an unnervingly erratic stock market.
Some who spend beyond their means can dip into savings and pull out the plastic only so long before they’re left with two unpleasant options: sharply cut spending or file for bankruptcy. Or both. That’s bad news either way for retailers coming off a less than cheery holiday season.
Sales probably rose about 1% last month, according to the International Council of Shopping Centers’ prediction, compared to last year’s 3.3% gain -- and the weakest rise in five years. Thomson Financial made a similar prediction, saying that sales at stores open a year or more probably rose 0.9%.
Some of the month’s weakness was tied to a fluke in the calendar that pushed more post-Thanksgiving sales into November, boosting that month’s results while depressing December’s numbers.
Michael Niemira, the shopping center group’s chief economist, estimated that the shift shaved about three-quarters of a percentage point off December’s results.
The season’s spending would be better assessed by combining November and December, which would put the rise at about 2.2%, Niemira said. That compares to last year’s 2.9% gain and would be the wimpiest increase since 2002, when the season’s same-store sales rose just 0.5%.
A report released Wednesday by Thomson Financial said that a majority of the sectors it monitors are estimating weaker results for last month than for December 2006.
Some retailers that release December results ahead of the pack announced lower profit projections Wednesday. Teen retailers American Eagle Outfitters Inc. and Hot Topic Inc. both trimmed fourth-quarter earnings expectations after weak sales reports. Men’s Wearhouse Inc. slashed fourth-quarter profit projections, citing “substantially lower traffic levels” in all of its U.S. and Canadian stores that hurt sales last month. It predicted that the weak traffic trends would continue this month.
On Wednesday, ShopperTrak RCT Corp. gave a more upbeat report than others, saying holiday sales climbed 4.5%, better than its 3.6% forecast. The firm, which measures a broader range of retail sales but excludes big box chains, said foot traffic slipped 2.7% from 2006 as people made fewer trips to stores but spent more on each visit.
“The holiday 2007 retail sales performance overwhelmingly proves the U.S. consumer is resilient,” ShopperTrak founder Bill Martin said in a statement.
Adding to the mix of bad-versus-good news, the American Bankers Assn. said last week that credit card delinquencies fell slightly during the third quarter but that delinquencies tied to home loan-related debt rose at a faster pace. That’s encouraging for credit card companies, though another blow for the battered housing front.
“Consumer loans directly related to the housing market were hit the hardest,” said James Chessen, the ABA’s chief economist, in a statement. “We anticipate delinquency rates will continue to rise on these types of loans in the fourth quarter of 2007 reflecting continued weakness in the housing sector.”
Niemira of the shopping center group said that Americans still were able to shop, because their incomes had risen in the last two years at a faster clip than over the last decade.
“The consumer really has the wherewithal to spend, despite what they may feel,” he said. “But the feeling really controls their willingness.”
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