NEW YORK — Despite positive same-store sales for many apparel retailers, analysts predict consumer spending will soften heading into the summer shopping months and back-to-school season.
The decline in the Conference Board’s Consumer Confidence Index for May shows consumers are weary of excess spending as gas prices exceed $3 a gallon and rising interest rates continue to loom.
The index, which now stands at 103.2, down from 109.8 in April, is the lowest it has been since the aftermath of the hurricanes last summer. While the dip was not as big as analysts expected, it still showed shoppers are not as eager to spend money.
“The Consumer Confidence Index shows the economy is slowing down,” said Lynn Franco, director of the Conference Board Consumer Research Center. “Consumers are a bit apprehensive about the outlook.”
While the employment rate is solid for the moment, anticipation of a possible cooling down of the job market seems to be a major force in weakening consumer confidence. According to the index, consumers expecting less job availability rose to 18.2 percent from 16.3 percent in April, and those expecting their incomes to increase declined to 16.6 percent from 18 percent.
“Consumers are worried about where the economy and their income is headed,” Franco explained.
Regardless of these economic factors, retailers such as J.C. Penney Co. and Target Corp. reported unexpectedly strong May sales.
The International Council of Shopping Centers’ sales tally of 52 retailers rose 4.1 percent in May, better than the 3.2 percent gain expected. Wal-Mart, however, was saddled with weaker-than-projected sales, as their consumers, most from low-income households, felt the weight of higher gasoline prices.
“We are coming off strong months with strong comparable-store sales in April and May, but we expect retail sales will soften as the year goes on,” said Philip Zahn, retail analyst at Fitch Ratings. “The most pressure will be on the lower-income consumer. We will see a shift away from more discretionary spending to spending on only necessities such as food.”
While Zahn said he does not think there will be much change in the spending of higher income households, the National Retail Federation’s 2006 Gas Prices Consumer Intentions and Actions Survey found that 69.3 percent of shoppers with household incomes of $50,000 or higher say gas prices are negatively affecting their spending, compared to 59.1 percent in 2005.
BIGresearch, an Ohio-based business development firm, also reported that 27.2 percent of shoppers are trimming their summer clothing budget, forcing retailers to deliver the best value for the dollar.
“The consumer remains addicted to spending, but we do believe the growth rates for apparel and consumer spending will slow down this year,” said Marie Driscoll, equity analyst at Standard and Poor’s ratings service.