Housing, stocks woes could pinch consumers

Allison Linn Senior writer • Profile • E-mail

The housing market is under strain, gas prices remain relatively high and, as if those worries weren’t enough, the stock market has tumbled to its lowest level since April.

The growing list of problems is enough to raise concerns that consumers are beginning to tighten their grip on their wallets — which could potentially cause a damaging ripple effect on the economy.

There are early signs that consumers are growing more cautious, but so far Americans do not appear ready to severely curtail their shopping habits.

One major reason: Despite other economic worries, the unemployment rate remains relatively low, and overall incomes are growing. That means that many Americans are still able to count on their most basic measure of economic well-being — a paycheck.

That gives some economists reason to be optimistic.

“The consumer is not going to throw in the towel,” said Stuart Hoffman, chief economist with PNC Financial in Pittsburgh. “They may wave it a little bit, but they’re not going to throw it in.”

Still, economists note there are signs that consumers are tightening their purse strings in some areas. That trend could grow more pronounced if consumers begin to feel other economic pinches, such as a weakening job market or the continued psychological pressure of declining home or stock prices.

“Probably, consumers in general are being more conservative,” said Brian Bethune, U.S. economist with Global Insight, who thinks the various factors could be causing more Americans to put off major purchases, such as cars or homes.

Americans’ shopping habits are of paramount concern to economists because retail sales account for some 70 percent of all economic activity. If shopping were to slow substantially, that slowdown combined with other problems could even be enough to push the country into a  recession.

The Commerce Department reported this week that retail sales rose 0.3 percent in July — an improvement over the previous month's 0.7 percent decline in sales of things like cars, clothes and furniture.

Still, Dean Baker, co-director of the Center for Economic Policy and Research, notes that a 0.3 percent gain is by no means a mark of stellar performance.

Also, there are other indications that consumers are growing more cautious about opening their wallets.

Discounting giant Wal-Mart Stores Inc. this week cut its guidance for the fiscal year ending in February, citing its own operating performance problems as well as economic concerns such as high gas prices. Wal-Mart previously had warned that profit margins could be hurt by its plan to use deep discounting to keep customers coming to its Supercenters.

Some clothing chains, including Limited and Gap, also reported weaker sales for July, heightening concerns about how much parents and teens will be willing to spend as back-to-school shopping picks up in earnest this month and next.

There are also other economic strains. In the housing market, those hit hardest have been caught in risky mortgages that they can’t afford, leaving them in danger of losing their homes.

Even for those who don’t face that crisis, weakness in the housing market could mean that Americans have less room to refinance their homes to pay for things like vacations, a new car or a home remodel, Baker said.

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