Business | Retail
Joblessness drains away shoppers' cash
US citizens still feel the impact of crisis as uncertainty about the economy prevails
- By Andrew Bounds, James Politi, Financial Times
- Published: 00:00 August 3, 2010
Washington: Ashley seemed content on Tuesday evening as she wandered through the comfortably air-conditioned Tysons Corner mall in Northern Virginia, just outside Washington DC.
There was a pair of "adorable shoes" in the 24-year-old's bag from Lord & Taylor, an upmarket women's clothing chain — surely a sign that she was not among the millions of US citizens still facing financial strains more than a year after the end of the recession.
But a few seconds later it became clear that such shopping trips are still exceedingly rare for the Villanova University law student, who unwittingly captures the waning momentum in consumer spending across the US economy.
"This is pretty much the first time I have been shopping in four months and I would usually go shopping every two weeks," she said. "I wouldn't even let myself near the mall for months, it just wasn't worth the pain."
The reasons for consumer weakness are multiple. The high unemployment rate of 9.5 per cent is arguably the biggest factor, since it limits the availability of disposable income.
In addition, many US shoppers are still reeling from the loss in their homes value, which is often a family's main investment. In addition, banks are still reluctant to lend, restricting credit for larger purchases.
Figures fall
Both the government's data on retail sales and the Conference Board's survey of consumer confidence dropped in the last two consecutive monthly readings, compared with a string of earlier increases. In the Federal Reserve's "Beige Book" summary of economic conditions, released last Wednesday, several districts reported that essential items were selling strongly but big-ticket items were moving off the shelves more slowly.
"Until we see some encouraging labour market data, there is little hope of the US consumer driving anything than a subpar recovery forward," David Semmens of Standard Chartered said afterwards. Others are less pessimistic. "Consumer spending is growing, it's not booming," says Michael Feroli of JPMorgan. "There is probably some caution but it is not shell-shocked behaviour."
Indeed, back at Tysons Corner, Mark, a 57-year old risk manager at nearby Freddie Mac, the government-controlled mortgage company, said there was a lot of uncertainty about jobs and the economy, but he felt secure enough to spend.
He said he recently bought a hardtop convertible car for his wife, just returned from Las Vegas, and would soon be heading to Aruba in the Caribbean for a week.
"I try to keep the economy going, but one person can't do it alone," he says.
Consumer spending
By far the biggest component of US GDP is consumer spending. After speeding up from an annualised pace of 1.6 per cent in the fourth quarter of 2009 to 3 per cent in the first quarter of this year, personal consumption expenditure — the Commerce Department's measure of consumer activity — is expected to have risen by 2.4 per cent in the second quarter of 2010.
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