Consumer ’Scared to Death’ But Still Spending
Americans’ urge to shop is overriding anxiety about the economy.
While household-sentiment measures are at levels typically observed during a recession, an increase in spending during the third quarter boosted growth to the highest level of the year, Commerce Department figures showed Oct. 27. The schism partly reflects consumer ire with the government’s failure to reduce 9.1 percent unemployment or stem rising deficits, said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management.
“Emotionally based indicators are suspect,” Paulsen said. “There is a lot of anger out there. In a calmer time, these indicators might provide a better guide. Consumers are scared to death, but they are still spending.”
Consumption has tracked sentiment about 75 percent of the time in the past 25 years, Deutsche Bank estimated in an Oct. 25 report. Periods when the confidence measures proved unreliable include the aftermath of the 1990-91 and 2001 recessions, the bank’s report and Paulsen said. The most recent recession lasted 18 months and ended in June 2009.
The surveys also may be somewhat less useful now because wealth is more concentrated, said Omar Saad, an analyst at International Strategy and Investment Group Inc. in New York. The top 20 percent of income earners, who make more than $100,000 a year, may account for more than half of household spending, and they are under-represented in the confidence gauges, he said.
Upper-income consumers have been “resilient,” Edward Yruma, a New York-based analyst at KeyBanc Capital Markets Inc., said in an Oct. 26 telephone interview. “Even if retail does slow, we still think the high-end will outperform middle- and lower-income retailers,” he said. He recommends buying the shares of Tiffany & Co. (TIF), Coach Inc. (COH) and Nordstrom Inc. (JWN).
Posted: 05/19/2013 12:24:00
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