August 15, 2007 / 5:56 AM / 12 years ago

From Starbucks to Wal-Mart, consumer pulls back

CHICAGO (Reuters) - From lattes at Starbucks to clothing at Wal-Mart, U.S. consumers are showing signs of lethargy and have retreated from their free-spending ways.

A customer sits in a Starbucks coffee shop in New York, March 14, 2007. REUTERS/Keith Bedford

“I don’t know if they’re dead, but they certainly are on life support,” Carl Steidtmann, chief economist with Deloitte Services LP, said of the more liberal-spending consumer, which in the past had led the boom in the U.S. economy.

But as the housing market decline moves into its second year, energy prices continue to be high and food prices jump, the consumer could actually be a drag on the U.S. economy.

“Now the consumer makes up about 70 percent of all GDP growth,” Steidtmann said. “If that goes from a factor that is boosting growth to one that is (hurting) growth, that could very clearly be a factor that could lead to a recession.”

Wal-Mart Stores Inc. (WMT.N) on Tuesday reported lower-than-expected second-quarter profit and said sales at U.S. stores open at least a year rose only 1.9 percent.

“It’s no secret that many customers are running out of money toward the end of the month, said Lee Scott, chief executive of the world’s largest retailer.

The company, which has more than 127 million customers in the United States alone every week, also said shoppers were spending more on lower-margin items like food and eschewing higher-margin goods such as apparel.

While economists tend to discount the impact of rising food prices in monthly inflation reports — because food tends to be a volatile component — consumers still feel the impact of widespread food price increases in their wallets.


Sixty-five percent of U.S. shoppers said they experienced significant price increases in their local supermarket, causing them to spend at least $8 to $20 more a week on groceries, Britt Beemer, chairman of America’s Research Group, said, citing a survey the group conducted in July. That compared with 53 percent in February and March and increased spending of $6 to $12.

“They’re devastating back to school right now,” Beemer said of higher food prices, which appear to be cutting into back-to-school shopping for new clothing and other necessities.

But it isn’t just the Wal-Mart consumer who is being hurt.

Sears Holdings Corp. SHLD.O said on Monday that sales at U.S. Sears stores open at least a year fell 4.3 percent in its second quarter, with Kmart sales down 3.8 percent.

Meanwhile, Home Depot Inc. (HD.N) has been hammered by the slumping U.S. housing market and posted a 15 percent fall in second-quarter profit on Tuesday. It also said quarterly sales fell for the first time in more than four years.

The economy is even cutting into some consumer’s daily Starbucks fix. Starbucks Corp. (SBUX.O) Chief Executive Jim Donald told Reuters earlier this month that higher prices for commodities such as gasoline and milk were affecting their customers.

Traffic at the coffeehouse chain rose less than 1 percent in U.S. stores for the three months that ended July 1.


Consumer spending, the driving force behind the U.S. economy, has slowed in the past few months, although it did prove remarkably resilient through a series of gasoline price spikes and the early stages of the downturn of the housing market.

In the second quarter, consumer spending advanced at a slim 1.3 percent annual rate, down from 3.7 percent in the first quarter.

David Rosenberg, North American economist at Merrill Lynch, pointed out that auto sales have fallen for a record seven months in a row, consumer spending in real terms has stagnated over the February-to-July period, chain store sales were flat sequentially in July and that while employment growth in the nonfarm payroll survey has stayed positive, the separate household survey has shown a stagnant labor market since February.

“There are plenty of signs now suggesting that we may be in the early stages of a consumer-led recession for the first time in 17 years,” Rosenberg said in a research report.

Additional reporting by Emily Kaiser

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below