The consumer credit retrenchment is coming even faster and harder than many anticipated. Big box retailers look likely to get coal in their stockings for Christmas as reduced consumer credit limits cut directly into sales. From Bloomberg:
Home Depot Inc., Sears Holdings Corp. and other retailers may lose as much as 8 percent of their holiday sales this year because lenders and stores are clamping down on financing.
Almost a quarter of shoppers say banks cut the spending limits on their credit cards, according to a survey by America’s Research Group, which also provided the sales-loss estimate. More people are being rejected for new cards, hurting sales for bigger purchases. Demand is being pinched just as retailers prepare to enter the holiday selling season, which accounts for as much as 35 percent of their annual revenue.
“Banks just don’t have the money,” said David Bassuk, a New York-based managing director at consulting firm AlixPartners LLP. The tightening credit is putting retailers “at big risk to lose those sales or lose those customers,” he said. “There is a big concern there with the holiday spending.”….
About two-thirds of holiday purchases are made using credit cards, estimates America’s Research Group Chairman Britt Beemer. That excludes gift cards, three-quarters of which are also bought using credit cards, he said. His Charleston, South Carolina-based firm surveys 10,000 consumers a week.
Beemer predicts holiday sales will decrease at least 4 percent, the first decline since he started forecasting in 1979, as consumers grapple with sinking home and stock values. His projections have been correct in 16 of the past 17 years.
Retailers that offer zero- or low-interest financing –which is often backed by banks — may also rein in the credit they extend to shoppers to avoid being left with bad loans when customers can’t pay them back…
A quarter of consumers polled in a Standard & Poor’s survey released Oct. 15 said they’re at or near the limits on their primary credit card, and 20 percent said they’re approaching the limit on their secondary cards.
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I think when all is said and done, an 8% reduction in retail sales for the holiday season is the rosy scenario.
Americans just don’t seem to understand what is in store for them.
Matt Dubuque
Matt…
I agree. The Grinch is coming for Christmas.
River, it would seem to be far closer to 12% than 8%.
But the Americans are really undergoing cognitive dissonance with respect to their latest predictions, which is causing them to be remarkably inaccurate.
I haven’t seen so many predictions that are so widely accepted be so far off the mark since Milton Friedman toured the country from July 1982 to March 1983 terrifying audiences with his predictions of imminent hyperinflation, which never came. It’s been 25 years now….I wonder if that M1B bulge in 1982 is going to come back to haunt us….
Did this decrease the faith of American in the myth of Friedman?
Of course not.
Inflation is an article of religious faith to American commentators.
Matt
XMAS meta-link: Where are you Christmas?
http://www.youtube.com/watch?v=TQqZU14kgOg
First off, this Disney-ized song REALLY sucks and thus, it represents the commercialization and exploitation of consumerism, so you get what you pay for here as a free, discardable or disposable symbol of what meaningless global capitalism represents.
Nonetheless, Cindy-Lou Who (who was only two) in the original cartoon, is the hopeful bright eyed kid that wakes up to find The Grinch stealing everything in her home, yet Cindy, offers to aid and abet:
http://www.youtube.com/watch?v=Tjqq3ElVYlg
Unfortunately, do the limitations of The LHC, there is no sound in that clip ( we are at the mercy of technology) but this is a multi-media metaphor, and I’m not sure yet as to how sound fits in with metaphorical abstractions, but … I digress…
Cindy, represents the average global worker, the investor, the person that has no clue what is going on with money, yet, as a deer in the headlights, these innocent sheep aid and abet wall street. These lemmings apparently wake every morning (from the coma they are in) with the hope that today will be an even better day at the shopping mall and that something will be on sale for XMAS, and then they pull out the credit cards and say yes to more — just as The Grinch said more, to poor Max, the slave dog that had to bear the burden of the real load.
I realize this is a difficult moment to connect Max to the reality of future debt burdens and the edge of the cliff which the capitalist sleigh glides upon, but please, next time you shop for something stupid, think of Max and not Cindy!
I know that most of this post doesn’t make the right point, but thank God we have people here that have it more together than me! My mind is elsewhere, but I just wanted to tap into The Christmas Spirit…
When people quote figures like 8% or 12%, they should also add a few lines of reasoning justifying it so that they don’t look like they’re pulling it out of thin air. We can all see that Christmas isn’t going to be too jolly for most of us, but the magnitude of the problem seems to be just a guess.
the magnitude of the problem seems to be just a guess
That’s what they said about Mount St Helens, Mount Vesuvius, Mount Krakatau, Mount Pelee and credit swaps, derivatives and Beanie Babies.
Hi,
I agree with one of the above posters, the numbers seem pulled out of thin air. Also the numbers do not match what one would get number-crunching the info quoted in the article. To quote the article:
QUOTE: Almost a quarter of shoppers say banks cut the spending limits on their credit cards…
QUOTE: About two-thirds of holiday purchases are made using credit cards….
Let’s see now, 0.25 x 0.67 = 0.1675 for a decline of 16.75%. But of course some people could still pay cash even if they have their credit cards taken away.
And that is just this year. What about Christmas 2009 when the credit situation may be even tighter?
In my opinion the best case is a multi-year “Lost Decade” situation. We will be lucky to have 0% GDP change the next several years, as opposed to a slow economic decline, losing a small percent of GDP per year.
Sincerely,
Phil D.
agree with the disagreement. -12% this year is silly. you’d call the person who forecasts a positive # a fool, but in reality he’ll have been much much closer to actual results than those throwing double digit negatives around.
What the American consumer really understands is loss of their job – and that is what is going to happen more frequently in the coming months.
The weak trade shipping mentioned in the last post indicates that manufacturers have cut orders significantly not only for XMAS sales but also for all items into Q1 2009.
It is the sale of items that drives the economy. Lower sales is going to result in cascading job losses across many industries, not just retail.
Here’s a link to monitor:
Techcrunch layoff tracker
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