Growing unemployment fuels drop in consumer spending

Consumers and retailers depend on each other — in fact, they are often the same people.

And, right now, as the all-important holiday season starts, bad news for one is likely bad news for the other. Linking the two is the willingness of consumers to spend — and that urge is in retreat.

“I don’t think I’ll be having a Christmas at all,” said Ursula Shepherd of Marietta, who was laid off in May and has been working odd jobs since to make ends meet. “Not having work makes all the difference. The family will send some gifts to my (two) boys, but it’s not the same if it doesn’t come from me.”

The vast majority of Americans do have jobs, but Shepherd is among a growing pool of the jobless: more than 10 million, according to the Bureau of Labor Statistics.

Paychecks matter, since consumers’ spending accounts for more than 70 percent of the economy.

For many retailers, the holiday shopping season is the period in which consumers’ power must come through, making the difference between profit and loss.

Economists say spending is leavened by expectations and shaped by income, wealth and credit. On almost all scores, the prognosis this year is for pessimism — exemplified by the University of Michigan survey of consumer confidence, which is hovering near all-time lows.

“Although consumer confidence rebounded from disaster levels in October, consumers are hunkered down for this recession,” said Brian Bethune, chief U.S. economist for forecasting firm IHS Global Insight.

What matters most to the economy is what people do, not what they say, but surveys now echo trends — and predict more trouble, said Scott Hoyt, director of consumer economics for Economy.com. “Real spending has declined for five consecutive months,” he wrote in an online post. “The absence of an improvement in sentiment is a bad omen for the holiday shopping season.”

Growing joblessness is stoking consumer pessimism. The unemployment rate has climbed to 7 percent in Georgia and to 6.5 percent nationally. More than one in 10 workers is out of work or underemployed, according to the Bureau of Labor Statistics.

Meanwhile, home values — the core of consumer wealth for many — have been falling. From September 2007 through September this year, prices nationally fell 16.6 percent, according to Standard & Poor’s Case-Shiller Index. Atlanta’s prices fell 9.5 percent, according to that report.

On the positive side of the consumer ledger, households have benefited recently from plunging gas prices. But that extra money seems to be going to savings, not stores — the savings rate rose to 2.4 percent in October, this after years in which Americans saved little or nothing.

More saving is good for household balance sheets, but bad for the retail bottom line.

In the mid-1980s, savings rates often peaked above 10 percent, but then started a steady decline. By earlier this decade, savings were actually negative — generating debt that gave an extra push to spending after the 2001 recession.

Americans refinanced mortgages and took out equity loans adding up to more than $1 trillion. They also received ever-higher limits on credit cards. They bought record numbers of homes and vehicles, spurred on by teaser rate mortgages and zero percent financing.

No more.

“Consumer credit is much harder to come by today,” said Mark Vitner, senior economist for Wachovia Economics Group, in a report issued this week.

Sagging retail sales, of course, connect back to the job market to mean less hiring.

The state Department of Labor says that Georgia in October had about 479,800 workers in the retail sector. That’s about 3,000 fewer than the same month a year earlier.

For a time, the cycle of jobs and spending will feed on itself, said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. “This is the middle of a recession which probably will intensify as consumers pull back on spending.”