Tracking the Consumer Crunch

Posted by: Michael Mandel on December 27

This morning the NYT has an article titled “Major Retailers Feel the Squeeze From Consumers”:

As the nation’s merchants began poring — or weeping — over holiday sales receipts Wednesday, a surprising pattern emerged: even brands that for years have inspired the undying devotion of shoppers felt the pinch of tightening wallets.

Once seemingly invincible marquee chains like Coach, Target, Starbucks and Abercrombie & Fitch are settling for ho-hum growth this winter, after surpassing even the most rosy expectations season after season.

Though they sell very different products, at very different prices, these companies all shared the same bragging rights. Their customers considered them indispensable, even expressions of who they were.

But in this turbulent economy, the indispensable is becoming disposable.


Just one more step down the road to the true consumer crunch, which won’t hit until early 2008, when the credit card companies decide that they’ve had enough losses for now.

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Reader Comments

Sean

December 27, 2007 01:07 PM

The retail season was mediocre, not a disaster by any means. Growth expectations for all four of the companies you cited would have been a real stretch even in a banner year.

Rado

December 28, 2007 11:27 AM

I totally agree, it will be really bad when the credit card companies decline further charges to protect themselves from over stretched comsumers. It will be at least as bad if not worse then the housing bust, the credit bust.

steve

December 28, 2007 07:03 PM

I can feel the trouble ahead. My line of credit was decreased by Amex even through, I didn't spend over 5% of my credit line and I have been with them for over 14 years.

Andrew P

December 29, 2007 03:33 AM

Retailers ALWAYS complain about their Christmas sales. It happens every year and can usually be dismissed as noise. And I doubt that the credit card companies are going to suddely cut people's credit limits, unless a customer is already in default on his mortgage. They may refuse to increase those limits or hand out new accounts as liberally as in the past, but so what? The real crunch comes if house prices actually fall into a downward spiral simultaneous with rising unemployment. The last part is the key. House prices are very sticky, and people won't dump property at a big loss until they are forced to sell. It is when you can't make the payments or have to move to take a new job that you are forced to sell.

Jettajet

December 29, 2007 04:14 AM

It might happen because the banks and credit companies, yes, Dean Whittier, HSBC, and others, are poised to take enormous losses. Also bear in mind, the credit card companies plan for a certain percentage to default anyways, it's built into the rate. So rates will go up, lending will go down, and some companies will disappear, not just from consumer credit but from collateralization of their home loans now in default.

munidas pereira

December 29, 2007 08:51 AM

The housing and credit card markets are connected and here is why.
Persons who owed money on their credit cards could get a(second?) mortgage based on the rising equity in their homes and pay off the credit card loans. since mortgage loans carry a lower interest rate than credit card loans this represented a net gain for the consumer. Now that housing prices are no longer rising , this strategy is no longer viable.

Steve

December 30, 2007 05:32 PM

I'll add my 2c here. The credit bubble, which led to the property bubble, has ended. There is a general tightening of credit. The Fed's efforts to alleviate the situation by cutting interest rates & injecting liquidity (printing money) will further erode the purchasing power of the greenback. Consumers are anticipating tougher times ahead & are taking steps to rein in their spending. Homes can no longer be used as ATM's as their values have topped out. Welcome to reality. 2008 will be a watershed year for the US & Global economy as the fallacy of ever expanding asset values is exposed.

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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