Hope springs eternal in the world of consumer economics — but it’s a tempered kind of optimism that’s taken hold in the U.S. this year with a teetering stock market and rising food prices causing some agita.

This story first appeared in the April 28, 2014 issue of WWD. Subscribe Today.

Trends have perked up along with the spring weather after a brutal January and February, when strung-out shoppers and severe winter storms hit merchants hard. Retail and food-service sales topped expectations in March, racing out of the gate with a 3.8 percent seasonally adjusted gain versus a year earlier.

If this sounds familiar, it should.

Spring has brought false starts to retail for the last few years. Merchants cleared out goods after a lackluster holiday season and enjoyed a nice boost from early spring selling, only to run into some sort of acute event that sewed uncertainty and weighed on consumers or distracted them from shopping: the Arab Spring, the tsunami in Japan, a debt showdown in Washington or worries about the breakup of the European Union.

“Every year along about late spring or so, there’s been some kind of unexpected shock,” said Scott Hoyt, senior director of consumer economics at Moody’s Analytics.

So far this year, the coast is relatively clear.

“You can’t predict shocks completely, but at this point it looks like everything’s settled in Washington,” said Hoyt. And the European economy is not great, but doesn’t appear to be headed toward immediate crisis that would impact the U.S.

“The only obvious flash point right now is probably the Ukraine,” Hoyt said. “The risks of that kind of [spring economic] shock feel lower this year than they have in most recent years, which doesn’t mean we won’t have one, but we’re cautiously optimistic.”

Even so, there are concerns beyond the mini Cold War, which was sparked by Russia’s annexation of Crimea and has impacted luxury retailers.

The potential potholes include a correction in the stock market and rising food prices — ills that come on top of stubbornly slow growth in incomes as well as high unemployment and general economic malaise.

Trouble on Wall Street is perhaps the worry that could come to the fore most quickly — and weigh particularly on the spending habits of the stock-rich luxe set.

The stock market came into sharp focus Friday with a steep sell-off that was sparked by increased tensions between Russia and the Ukraine, a sharp drop in Ford Motor Co.’s first-quarter earnings and jitters in the tech area.

The Dow Jones Industrial Average dropped 0.9 percent, or 140.19 points, to 16,361.46, as the S&P 500 Retailing Industry Group fell 2.9 percent, or 25.26 points, to 854.86 — the second worst day for the sector this year. Among the decliners were Amazon.com Inc., down 9.9 percent to $303.83; Under Armour Inc. 4 percent to $48.42; Sears Holdings Corp., 3.3 percent to $41.81, and Kate Spade & Co., 2.3 percent to $33.66.

The setback prompted a fresh round of bearish headlines and shrank many stock portfolios. Should the selling continue on Wall Street, it could create a negative feedback loop for consumers, who, if they curtail spending, will prompt more worries about corporate profits and trigger another stock sell-off.

That’s would be a particularly bruising blow since the stock market has lately been a source of strength for shoppers and retailers, with the Dow Jones gaining 26 percent last year as retail stocks advanced 44 percent.

So far, consumers have been relatively upbeat.

The Thomson Reuters/University of Michigan Surveys of Consumers said Friday morning that its Index of Consumer Sentiment advanced to 84.1 this month, up from 80 in March.

“The most important issue is whether consumers will show greater resistance to the backslides that have repeatedly occurred in the past few years,” said Richard Curtin, chief economist of the Surveys of Consumers. “Resilience among consumers is dependent on positive long-term economic expectations. While near-term expectations have improved substantially, longer-term expectations for personal finances as well as the overall economy have remained unchanged from a year ago. Hopefully, as the pace of economic growth springs ahead in the coming months, the main beneficiary will be an improvement in long-term economic expectations for personal finances as well as the overall economy.”

Some consumers, and brands, are more vulnerable to disruption than others.

Lower-end shoppers are wrestling with a still-weak, albeit improving, labor market characterized by unemployment of 6.7 percent with 10.5 million people out of work and looking for jobs.

That pressure, combined with other factors, has proved too much for some chains. Budget-minded Dots is in the midst of going-out-of-business sales, and on Friday, The Wet Seal Inc. unveiled plans to shutter its 54-door Arden B. chain, which emphasized affordable pricing.

And other, more high-profile and steadier chains have been hit by sales declines. Gap Inc. saw its March comparable-store sales fall 7 percent at both Gap and Old Navy and 4 percent at Banana Republic, although some of that weakness was attributed to Easter’s move to April this year from March last year.

The real winners appear to be the online players, which continue to grow quickly. Amazon.com Inc.’s first-quarter product sales shot up 18.3 percent to $15.71 billion as the company no doubt took share from brick-and-mortar chains.

But if consumers have to pinch their pennies too hard, even e-commerce companies could feel the squeeze.

Food prices are another wildcard in the retail outlook, particularly for low-income consumers who count their grocery bills as a larger part of their spending.

Chris Christopher Jr., director of consumer economics at IHS Global Insight, noted in an analysis that food prices “surged” 0.4 percent in both February and March.

“Food price increases are expected to make further gains in the second quarter — a kick in the stomach for those households that have a hard time making ends meet,” Christopher said. “The food-price gains have been dominated by meats, where price cycles take a long time to sort out and animal herds are currently lean.”

Meat, poultry, fish and egg prices have gained 5.1 percent for consumers over the past year, according to the Labor Department. While Christopher described the overall inflation story as “relatively bland,” he said food prices were “worrisome” and warned that “living standards will suffer.”

Gasoline prices are also creeping up, with AAA pegging the national average for a gallon of regular at $3.69 Friday, up from $3.54 a month ago and $3.51 a year ago. As a general rule of thumb, each penny increase in the price of gasoline equals about $1 billion in household energy consumption.

Even so, economists don’t generally see inflation as a concern over the next few years. Longer term, however, prices are expected to come to the fore as the billions of dollars the Federal Reserve produced to stabilize the economy finally work their way through the system.

So it’s steady as she goes, for now, and a continuation of the theme that’s ruled since the Great Recession: With no big shocks, the consumer economic machine can be expected to putter along, with starts and stops, weak incomes and high unemployment.

It’s been a relatively steady, if slow, climb out of the Great Recession, and many shoppers are holding out for price promotions before opening their wallets.

Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University, said consumers are keenly aware of how much they’re spending.

“Their incomes are not growing and they have to be very cautious,” he said. “Income growth in this recovery has been abysmal.”

Disposable personal income averaged growth of just 1.2 percent annually from 2008 to 2013 — including both the recession and the recovery. That marked a significant slowdown from the previous 10 years, when incomes increased 3.4 percent on average, according to the Commerce Department reading of incomes in chained dollars. 
Dhawan said consumers are still out shopping, but that spending “seesaws up and down every month depending where the deals are, especially in the car sales.” He noted stock portfolios have reinflated since the crash and that home prices have risen, giving shoppers more confidence to spend when given the right incentive.

“The consumer these days is a deal junkie,” he said.