Televisions, club memberships and boats are accounting for a smaller share of U.S. consumer spending since the recession.
Americans spent about $782.5 billion for recreational goods, vehicles and services -- including sporting equipment and amusement parks -- in January on a seasonally-adjusted annualized basis, representing 6.9 percent of total personal consumption, based on data from the Commerce Department. The share nearly matches the average since the 18-month slump ended in June 2009. In the three years before the recession, the average was 7.4 percent.
Consumers are suffering from the “overhang of a frugality psyche” that’s making them either unwilling or financially unable to allocate the same amount of their budgets to these goods and services, said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. The result is a “lasting legacy of the severity of the recession.”
Higher gasoline prices and payroll-tax increases this year have led to a “broad-based” slowdown at fitness clubs owned and operated by Town Sports International Holdings Inc. (CLUB:US), Chief Executive Officer Robert Giardina said on a Feb. 19 conference call. Cancellations increased, and personal training and membership sales started to fall in the second half of January for the New York-based company as consumers became “much more cautious again,” he said.
‘Not in Fashion’
Amid rising costs for basic necessities, “consumers still are budgeting for recreational activities as though there’s been no improvement in the economy,” Hoffman said. With many Americans buying “what they need versus what they want,” it’s “not in fashion” to use credit cards for leisure purchases.
This sentiment is echoed in surveys conducted by America’s Research Group, a consumer-behavior research and consulting company. Parents are “fearful” about going back into debt to pay for discretionary items because they’re more focused on how to help their children finance college expenses, said Britt Beemer, chairman of the Charleston, South Carolina-based group.
“When we ask parents what they do when the budget gets tight, they say they go to fewer movies and restaurants, then cut down on their cable bill or computer services,” Beemer said. Refinancing their homes or taking out a second mortgage as a “piggy bank” to keep up a particular lifestyle is no longer an option for many homeowners, he said.
“There’s been a sea change in the mentality of consumers,” Beemer said. Americans are “shunning debt” as other priorities are “overshadowing all spending on everything nonessential.”
U.S. paychecks have shrunk this year after Congress and President Barack Obama let the tax that funds Social Security benefits revert to 6.2 percent from 4.2 percent. Rising costs for gasoline and health care also have “wiped out” a lot of spending money, Beemer said, adding that some workers are paying about $45 to $85 more a month to fund their employer insurance plans.
Health care expenditures -- including outpatient services and hospitals -- accounted for 16.4 percent of total personal consumption in January, up 2 percentage points from the 10-year prerecession average, Commerce Department data show. Meanwhile, the average price of a gallon of regular unleaded has risen about 16 percent to $3.75 from a low of $3.22 on Dec. 19, according to Heathrow, Florida-based AAA, the largest U.S. motoring organization.
Consumers are “really feeling the pinch” as the cost of filling up their tanks and other energy expenses “detracts from their ability to spend on a new bike or other leisure items,” said Lance Roberts, who oversees $500 million as chief executive officer of Streettalk Advisors LLC in Houston.
Retail sales rose 0.3 percent last month, based on the median estimate of economists surveyed by Bloomberg, following monthly gains in November through January. February figures are scheduled to be released on March 13.
American consumers also have been “forced to live frugally” because they haven’t seen a big boost in hourly earnings adjusted for inflation, Roberts said. The average for all U.S. private-sector employees rose 0.6 percent in January from a year ago, Labor Department figures show.
Even so, the share consumers are allocating to recreational spending has stabilized since the recession, as their “inability to splurge has been pretty steady for the past three years,” Hoffman said.
There also are winners and losers in the discretionary- spending category, as some companies have managed to sustain solid sales, Roberts added.
Brunswick Corp. (BC:US) is forecasting revenue growth of 3 percent to 5 percent this year, following a 1 percent increase in 2012, according to a Jan. 24 statement from the Lake Forest, Illinois- based company. Sales in its U.S. boat business rose 13 percent in the three months ended Dec. 31, 2012, driven by dealers “increasing their pipeline levels in response to strong retail demand trend,” Chairman and Chief Executive Officer Dustan McCoy said on a conference call that day.
Still, based on consumer-spending habits during the holiday season -- when many shoppers in Beemer’s surveys reported cutting back on gift-giving -- big-ticket purchases of some discretionary items probably are on hold, he said. “Needs have overtaken the wants in America.”
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