"The consumer has been on vacation in terms of buying for the last four months," noted Stacy Ruchlamer, a retail analyst with Shearson Lehman Bros. "Consumers have just now gotten back into the stores."
Nonetheless, although shoppers trooped back to the stores in August in increased numbers and sales improved after months of sluggish buying, retailers and financial analysts are not expecting a booming Christmas this year.
"I would be happy if we see a 3-to-5 percent increase in shopping over last year" at stores that have been open for more than a year, commented Bernard M. Fauber, chairman of K mart Corp., the nation's second-largest retailer. "That's nothing like last year -- or not even as great as we had hoped earlier when we anticipated a 7-to-8 percent increase in sales over last year."
Despite a 9 percent sales increase in August at the Bradlees discount chain, Chairman Harold Frank is similarly not optimistic. "We don't see a general pickup that you could say is an omen for the future," Frank said.
The reason, explained Sandra Shaber, director of Chase Econometrics consumer market forecasts, is that "the sluggish economy has finally caught up with the consumer," with slower income growth finally having an impact.
Since the beginning of the economic recovery, the growth of consumer spending has outstripped gains in personal income. As a result, the savings rate dropped to 3.4 percent of disposable income in July -- the lowest level in nearly 40 years -- and installment credit reached a record of 18.6 percent of disposable income the month before, noted David Wyss, chief financial economist of Data Resources Inc.
"Consumers are borrowing at a record level. We expect it to top off. . . . Consumer spending can no longer stay ahead of income. Spending will have to decrease," said Wyss, predicting sales increases of only 6 percent above last year for this Christmas season.
U.S. Commerce Secretary Malcolm Baldrige agreed. After announcing that August sales climbed 1.9 percent over July levels, Baldrige cautioned last Friday that he expected to see slower growth during the second half of the year. "Consumer spending should continue to move upward, but at a lesser rate than in the first half, particularly if consumers raise their rate of saving from the low current levels," he said.
Much of the spending that will be done will not necessarily be on goods, but rather on services, such as travel and exercise clubs, making retail sales all the more sluggish, said Ken Goldstein, an economist with The Conference Board.
Making matters worse, there will be six fewer shopping days between Thanksgiving and Christmas, making it all the more unlikely that retailers will ring up big sales gains this holiday time.
The sluggish consumer spending was one reason why the auto manufacturers have launched their huge buying-incentive programs -- offering interest rates of 7.5 to 7.7 percent on new car sales. The discounts caused auto sales to jump 71 percent in the last 10 days of August -- to a level the industry hasn't seen in more than 10 years.
Yet economists and financial analysts do not expect this boom to last. "It is only a temporary bulge," said Wyss. Come October, when new cars are offered and the discounts are dropped, sales will drop -- particularly considering that many of the car buyers in August were those who were probably waiting for the arrival of the new cars, Wyss said.
Despite the automobile promotions, most financial analysts do not expect to see the rash of sales that broke out last year. Their reason: this year retailers have been much more cautious in building their inventories so they won't be forced to slash prices to move goods out of their stores.
Retailers expected to fare the best are the specialty chains that have been grabbing a larger share of the consumer's dollars every year. Thanks to a renewed interest in apparel, department stores are also expected to do well. General mass merchandisers, such as Sears, Roebuck & Co. that are more susceptible to high consumer debt and slowing consumer confidence, are expected to have the poorest performance.