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Tepid US retail sales raising doubts about economy

Consumers living paycheck to paycheck may be spending money mostly on essentials, with little left over for discretionary items, analysts say.

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Consumers living paycheck to paycheck may be spending money mostly on essentials, with little left over for discretionary items, analysts say.

A lot of Americans are still spending their money only on socks and other essentials, highlighting the disparity between younger and poorer consumers and those who are benefiting from the economic recovery.

Major retailers, like Walmart and Kohl’s, that cater to budget-conscious customers with lower incomes cited sluggish sales this week as they decreased their annual forecasts. Macy’s, with a slightly higher-income clientele, did not meet analysts’ expectations for the first time in 25 quarters.

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But even upper-income consumers do not seem to be spending as freely as some hoped. While Nordstrom, which reaches a middle- to luxury-end market, reported a higher-than-expected quarterly profit Thursday, it too said sales “remained softer than anticipated” and lowered its forecast.

The latest sales reports painted a bleak picture for a sizable swath of the retail sector even as other economic indicators showed signs of consumer confidence.

“There is a certain segment of the population that is faring well in this economy and have seen their net worth rise sharply with stock and housing market gains,” said Ken Perkins, president of Retail Metrics. “Then there is the much larger segment of Americans that are working in low-wage jobs, part-time jobs, that are struggling to make ends meet and are living paycheck to paycheck.”

In a call with reporters Thursday, Walmart’s chief financial officer, Charles M. Holley Jr., said there was “a general reluctance of customers to spend on discretionary items right now.”

As the back-to-school season reaches its peak, some retailers are not optimistic that they could see a big revival among shoppers.

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“The expectations through the end of the year are really through the lens of the cautious consumer,” Holley said.

A few major factors have impeded progress for a lot of Americans as the country wades out of the recession. Job market growth has been decent, but the jobs added have not.

“A lot of the gains have been in extremely low-paying sectors: retail, health care, temporary employment,” said Joshua Shapiro, chief economist at MFR.

When it is not full-time work, he said, benefits are low to nonexistent.

“If you dig below the surface, it’s not that wonderful of a picture,” he said.

Retailers also singled out the payroll-tax increase as one reason consumers were feeling thrifty.

“If you’re making around $50,000 a year, that’s $40 a paycheck that our customer doesn’t have that they would’ve had last year,” Holley said.

While retailers tend to offer excuses for missing quarterly results — good weather, bad weather, sporting events — economists agreed that the tax increase was affecting sales.

“In terms of people who are paycheck to paycheck, which is a good chunk of this country, and certainly a good chunk of lower-end retailers’ customers, it has a significant effect,” Shapiro said.

Other economic indicators, like the upswing in the housing and stock markets, have not meant much to low-income shoppers.

In the housing market, “first-time buyers, in particular, have been waning,” said Diane Swonk, chief economist at Mesirow Financial.

Shapiro said many sales are due to “speculative institutional demand,” not typical home buyers.

Teenagers, too, are having a rough time, as shown by a recent earnings report from Aeropostale and an earnings warning from American Eagle.

“Teenagers have not had jobs for a while, and have to compete with older workers, and the back-to-school market’s not looking terrific this year,” Swonk said. “It’s about the unevenness of the recovery across both age and income groups.”

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