Anxiety Creeps Into Americans' Spending Habits - Consumers, Businesses Play the Waiting Game
www.washingtonpost.com By Maryan Chilinguerian washingtonpost.com Staff Writer Thursday, March 13, 2003; 1:48 PM
Americans, frustrated with the ongoing uncertainty over the Iraq crisis and a national economy teetering on the edge of recession, are spending less on big-ticket items, opting instead to stock up on the necessities. U.S. businesses anticipate that if a war occurs, consumers will continue to penny pinch until the outcome is clear. And while the fighting continues, consumers are expected to remain glued to their televisions instead of spending at the malls.
Many companies have scaled back production, investments in capital goods and advertising spending as they await a possible war with Iraq. The auto industry is feeling a lot of this pain. Two major auto retailers, General Motors Corp. and Ford Motor Co., have already announced plans to cut production in the second-quarter on the assumption that demand for automobiles will drop. • In U.S. Plants and Wallets, The Other Iraq Standoff (The Washington Post, Feb. 25, 2003)
Throughout the economic downturn, auto sales have remained relatively strong due to zero percent financing and cash back offers that lured in customers. But the allure of those promotional offers has worn off. According to January's retail sales report, auto sales dropped 7.5 percent while overall retail sales increased at the fastest rate over two years. Sales of home improvement items, gasoline and groceries showed the strongest sales numbers, indicating that consumers are only stocking up on necessities. Retailers also took a hard hit in February, due in part to the mid-Atlantic blizzard that kept shoppers locked indoors over the President's Day holiday weekend. • February Retail Sales Fall 1.6 Percent (The Washington Post, March 14, 2003) • As U.S. Gears for Fight, Spending Winds Down (The Washington Post, Feb. 25, 2003) • Retail Blows Hot In Winter (The Washington Post, Feb. 14, 2003)
One possible reason for dwindling consumer spending is the spike in fuel costs. Exacerbated by the political instability in Venezuela and looming war with Iraq, oil prices are nearing an all time high, with the national average reaching $1.77 per gallon for gasoline. Prices at the pump are expected to continue to rise as demand outpaces supply. Recently, the national inventory of oil hit 25-year lows and an attack on Iraq could worsen the problem by disrupting overseas oil supplies. • Gas Prices Rise to Near-Record Level (The Washington Post, March 11, 2003) • Is Worst Ahead for Airlines? (The Washington Post, March 11, 2003) • Retail Gasoline Prices to Set Record High (The Washington Post, March 7, 2003) • Natural Gas Price Surveys Under Suspicion (The Washington Post, Feb. 29, 2003) • Paying the Price for Rising Fuel Costs (The Washington Post, Feb. 29, 2003)
Whatever the reason, the anxiety is growing and is evident in the latest consumer confidence report. The Conference Board reported consumer confidence plunged to its lowest reading in nine years. • Investors Skittish Worldwide (The Washington Post, March 12, 2003) • Stock Indexes Retreat From War (The Washington Post, March 11, 2003) • Consumer Confidence at 9-Year Low (The Washington Post, Feb. 26, 2003)
The U.S. dollar recently hit a four-year low versus the euro, losing 20 percent of its value against the European currency in the past year. A weak dollar is beneficial for American exporters because it makes domestic goods more competitive against foreign-made products. But a weak dollar could crush confidence in U.S. currency and hurt foreign investment. • New Treasury Chief Learns A Lesson (The Washington Post, March 6, 2003) • U.S. Trade Deficit Rises to Record Levels (The Washington Post, Feb. 21, 2003)
Historically, war has sparked bullish behavior among investors but continuing uncertainty about whether and when a war against Iraq could occur is dragging on the markets. Fund managers and institutional investors are sitting tight and waiting, keeping trading volumes low and the Dow teetering below 8,000. • Wall Street Sits Tight as War Looms (The Washington Post, Feb. 13, 2003)
However, the markets were given some reassurance in the latest report on gross domestic product. The Commerce Department revised its January report of GDP, which grew at a 1.4 percent annual rate versus the originally reported 0.7 percent. • Economic Growth Rate Upgraded (The Washington Post, Feb. 29, 2003)