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No April Showers:Consumers Upbeat But Pay Worries Loom

The Consumer Confidence Index jumped to 92.9 from 88.5 in March, reflecting an upbeat mood based on an improved jobs picture.

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NEW YORK — Consumers were an optimistic bunch in April, giddy shoppers warmed by the job outlook.

But before popping the cork, retailers may want to consider the rising number of consumers who expect skinnier paychecks. Moreover, a recent research report says that apparel sales are in jeopardy, and suggests that this might be as good as it gets for retail.

The Conference Board on Tuesday said that the Consumer Confidence Index jumped to 92.9 from 88.5 inContinued from page one

April, reflecting an upbeat mood based on an improved jobs picture. Since last month’s number was unchanged from February, the increase in April definitely reflected a more positive consumer. Also gaining strength were the Present Situation Index, jumping to 90.6 from 84.4, and the Expectations Index, rising to 94.5 from 91.3.

Consumers’ optimism about the next six months, the board said, improved for the first time this year. Completing the forecast picture on optimism was a slight gain in the numbers for those expecting business conditions to improve, edging up to 20.5 percent from 19.5 percent last month. The month showed a corresponding dip to 9.3 percent from 9.7 percent for those expecting conditions to worsen.

Lynn Franco, director of the board’s Consumer Research Center, said in a statement, “The job market, which has a major impact on confidence, appears to be gaining strength. The percentage of consumers claiming jobs are hard to get is now at its lowest level since November 2002, and more consumers expect this trend to continue.”

While the employment outlook was more favorable, caution was in the air. Buried at the end of the board’s release, in the last sentence, was a notation that “Consumers anticipating an increase in their incomes declined to 17 percent from 18 percent last month.”

So was there improvement or not?

Maury Harris, chief economist at UBS, wrote in a research note, “An improving labor market had a disproportionately large positive impact on both the present situation and expectations components.”

He noted, “The UBS Index of Investor Optimism and the preliminary University of Michigan consumer sentiment index, which are less sensitive to labor market conditions, fell in April.”
Richard Hastings, credit economist at Bernard Sands, observed, “The Index is a general barometer about some consumer attitudes, but not really a good source of information about both where people get their money and for how long they’re going to spend it. It does indicate that there is some encouragement regarding improvement in the numbers. However, while the numbers are higher than last month’s, they’re still below where we were in January 2004.”

In January, the Confidence Index was at 97.7, with the Expectations Index peaking at 105.3.

Hastings said while the job market has improved, wage growth has trended down.

“People are getting jobs, but at lower wage levels than in the past. This could lead to a slowdown in consumer spending down the road. So far consumer prices are up on a variety of products. With wages not growing, there won’t be big gains on spending unless there’s massive job creation,” he said.

The economist said the employment picture would have to show at least nine more months of steady job creation, or a moving average of at least 100,000 jobs created, before one can say that the economy’s perceived improvement is on solid footing.

He expects consumer spending to continue, but “moderate in the second half from the hot pace of the last nine months. It will not fall off a cliff, but there are a few things to watch closely, such as housing prices, jobs creation and whether wages are lagging behind inflation.”

Gary Drenick, director at BIGresearch, a consumer market intelligence firm, said that his firm’s surveys at the beginning of the month indicate a possible slowdown in apparel purchases by consumers. Respondents are asked questions ranging from demographics to attitudes about the economy, as well as specifics on shopping strategies and financial planning.

Of the 8,000 to 10,000 surveyed, 46.5 percent said that they planned to use their credit cards less often. Tax refunds, according to 9.6 percent of the respondents, would be used to pay down credit-card debt.

Of course, the plan to decrease overall spending comes at a price for retail sales, with apparel as one category impacted by the pullback.
“One of the issues is the price of gasoline. Our question to consumers was at what price per gallon does gas prices need to reach before consumers cut back on home and apparel items. Our results indicate that 56.2 percent of the respondents nationally would cut back once [a gallon of gas hits] the $1.75 to $2 range,” Drenick said.

He noted that while 18.8 percent said it wouldn’t matter even if a gallon rose as high as $3, that percentage was also attributed to a group of consumers that could maintain their consumption habits because of a traditionally far higher income level.

Regarding apparel, the response was flat for April versus last month for consumers who planned to buy “women’s dress clothing,” according to Drenick. The responses were “off slightly” for planned purchases of women’s casual apparel, according to the survey. The results were similar for planned purchases of men’s apparel, as well as children’s apparel and footwear.

The results also indicate a trend that consumers now are taking a good hard look at allocation of family finances, and perhaps a suggestion that they may be less inclined to be tempted by the latest fashions.
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