From Starbucks to Wal-Mart, US buyers pull back

FROM lattes at Starbucks to clothing at Wal-Mart, US consumers are showing signs of lethargy and have retreated from their free-spending ways. “I don’t know if they’re dead, but they certainly are on life support,” Carl Steidtmann, chief economist with Deloitte Services, said of the more liberal-spending consumer, which in the past had led the boom in the US economy. But as the housing market decline moves into its second year, energy prices continue to be high and food prices jump, the consumer could actually be a drag on the US economy. “Now the consumer makes up about 70% of all GDP growth,” Steidtmann said. “If that goes from a factor that is boosting growth to one that is (hurting) growth, that could very clearly be a factor that could lead to a recession.”

Wal-Mart Stores on Tuesday reported lower-than-expected second-quarter profit and said sales at US stores open at least a year rose only 1.9%. “It’s no secret that many customers are running out of money toward the end of the month, said Lee Scott, chief executive of the world’s largest retailer. The company, which has more than 127 million customers in the United States alone every week, also said shoppers were spending more on lower-margin items like food and eschewing higher-margin goods such as apparel. While economists tend to discount the impact of rising food prices in monthly inflation reports — because food tends to be a volatile component — consumers still feel the impact of widespread food price increases in their wallets. Sixty-five percent of US shoppers said they experienced significant price increases in their local supermarket, causing them to spend at least $8 to $20 more a week on groceries, Britt Beemer, chairman of America’s Research Group, said, citing a survey the group conducted in July. That compared with 53% in February and March and increased spending of $6 to $12. “They’re devastating back to school right now,” Beemer said of higher food prices, which appear to be cutting into back-to-school shopping for new clothing and other necessities.

But it isn’t just the Wal-Mart consumer who is being hurt. Sears Holdings said on Monday that sales at US Sears stores open at least a year fell 4.3% in its second quarter, with Kmart sales down 3.8%. Meanwhile, Home Depot has been hammered by the slumping US housing market and posted a 15% fall in second-quarter profit on Tuesday.

STILL A KING?

Consumer spending, the driving force behind the US economy, has slowed down in the past few months, although was resilient through a series of gasoline price spikes In the second quarter, consumer spending advanced at a slim 1.3% annual rate, down from 3.7% in the first quarter As the housing market continues to decline, energy prices remain high and food prices jump, the consumer could actually be a drag on the US economy