graphic
graphic  
graphic
Technology > Tech Investor
graphic
Will consumers play Grinch?
Consumer spending has helped keep the economy afloat. But it may not save the holiday season.
October 16, 2002: 3:47 PM EDT
By Eric Hellweg, CNN/Money Contributing Columnist

Sign up for the Tech Investor e-mail newsletter

SAN FRANCISCO (CNN/Money) - I enjoy the holiday season as much as anyone else, but I have to admit this year I'm feeling a little grinchy. Not out of any malice toward the season, mind you, but because of what I'm seeing from economists and consumer surveys.

I think Christmas 2002 will be a very tough season for technology companies and retailers that depend on strong holiday sales. Companies that rely on the Christmas sales season to boost their yearly revenues may face a bleak season, indeed.

Why? Because consumer confidence and spending -- the twin pillars that have held the economy steady and tamed the current downturn -- are starting to crack. And unfortunately, business spending isn't doing much to pick up the slack.

The US Commerce Department reported that overall retail spending was down 1.2 percent in September, the biggest drop since November, 2001. Retail sales inched up only 0.1 percent that month, the smallest increase ever, save a decline in May. The University of Michigan's consumer confidence index just recorded a nine-year low, with 15 percent of respondents saying their wealth had declined over the last year, the highest percentage to report that in the study's 50-year history.

But wait, there's more. A weekly telephone poll conducted recently by ABC News and Money magazine that ranks the national economy, personal finances, and the overall buying climate, hit its lowest levels since January 1996.

Finally, though the market recently showed some sign of crawling north, the Dow Jones Industrial Average lost 18 percent between July and September, its worst quarterly performance since 1987. The 12 percent decline in September was the worst for the month since 1937, according to the Wall Street Journal.

The holiday season is of paramount importance to a wide array of companies. According to the Census Bureau's retail sales data, November and December account for 18.5 percent of total retail sales. For the technology sector, those two months take on even greater importance. Electronics stores see a full 25 percent of their sales in that time, and computer and software stores, 19 percent.

So technology companies that rely on strong holiday retail seasons, companies such as Apple (AAPL: down $0.64 to $14.52, Research, Estimates), Gateway (GTW: down $0.14 to $2.62, Research, Estimates), Dell (DELL: down $0.60 to $26.94, Research, Estimates), Palm (PALM: Research, Estimates), Microsoft (MSFT: down $1.93 to $50.36, Research, Estimates), Intel (INTC: down $2.94 to $13.58, Research, Estimates), and retailers such as Amazon (AMZN: up $0.45 to $19.39, Research, Estimates) and Wal-Mart (WMT: up $0.36 to $56.65, Research, Estimates), could find themselves without that reliable year-end sales pop.

"Hewlett-Packard (HPQ: down $0.64 to $12.86, Research, Estimates) is the largest in the segment, Apple is almost all consumer-focused, and Gateway is expanding their consumer presence," says Rob Enderle, an analyst with Giga Information Group. "There's a lot of pressure on these companies now that we've seen how bad the back-to-school sales were."

MORE TECH INVESTOR
graphic
Taking aim at the mod squads
On the waterfront: Technology change
Overture gets a standing O

That doesn't bode well for tech companies or the economy at large. Scott Hoyt, the director of consumer economics at Economy.com, believes that consumers will continue to spend enough to keep the economy moving forward until next year, when he predicts business spending will pick up.

But Hoyt admits there are "significant risks" to that forecast. "A significant slowdown in consumer spending is a major risk to the continued economic recovery," he says. "If consumer spending falls, the probability of the economy slipping back into recession is very high."

Some investors scooped up technology stocks last week, believing the market had hit its low, and that the upcoming holiday season would only push things higher. They may want to pay close attention to the weekly retail reports coming out in the next couple of months. If current trends continue, it won't be a season of mirth.


Sign up to receive the Tech Investor column by e-mail.

Plus, see more tech commentary and get the latest tech news.  Top of page




  More on TECHNOLOGY
Honda teams up with GM on self-driving cars
The internet industry is suing California over its net neutrality law
Bumble to expand to India with the help of actress Priyanka Chopra
  TODAY'S TOP STORIES
7 things to know before the bell
SoftBank and Toyota want driverless cars to change the world
Aston Martin falls 5% in its London IPO




graphic graphic

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.