Stimulus not enough to juice consumers

Weakness in retail sales shows Americans still not shopping freely. Economists say trend is a problem for now but could help economy in the long run.

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By Parija B. Kavilanz, senior writer

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NEW YORK ( -- It looks like Americans still aren't in the mood to splurge at the mall.

Several of the nation's leading retail chains reported Thursday that their same-store sales declined again in June.

The reports raise questions about whether the government's effort to use stimulus spending to boost consumer spending is working.

Sales tracker Thomson Reuters, which tracks monthly same-store sales for 30 chains such as Target (TGT, Fortune 500), Gap Inc. (GPS, Fortune 500) and J.C. Penney (JCP, Fortune 500), said overall June sales for the group fell 4.9%, compared to a gain of 1.9% last June.

It marked the 10th-straight monthly decline for that index, which measures sales at stores open at least a year. That's worrisome because consumer spending fuels two-thirds of all economic activity.

By comparison, retailers last June cashed in plenty of one-time rebate checks given to eligible taxpayers -- and much as $600 for individuals and $1,200 for couples -- that were being doled out to consumers to stimulate the economy.

This year, many Americans have already seen extra money in their pockets through 2009 stimulus measures such as lower tax withholdings, higher unemployment benefits and Social Security payouts. But consumers continue to restrict their store purchases to everyday necessities while forgoing other discretionary items.

Still, some economists argued that the stimulus to consumers is having a positive impact on consumer spending.

"Consider what consumer spending would be doing without this stimulus," said Scott Hoyt, senior director of consumer economics with Moody's

"People are still losing jobs, their personal wealth is eroding and real wages are falling," said Hoyt. "But consumer spending is trending flat so far this year. It's not declining like it did in the second-half of last year. So I guess the stimulus is working."

And while last year's rebates were sent out as one-time payments over mostly a concentrated period of time, Hoyt said the additional money consumers are getting this year is "stretched out over a nine to 10 month period."

"They aren't getting a one-time check. So the impact will be spread out over time," he said.

What's more, Hoyt said, temporary factors like cooler-than-normal weather in June also hurt sales of warm-weather products last month.

Saving more, spending less? Other industry watchers have speculated that this recession has changed consumer behavior in a significant way.

They said frivolous spending, one of the hallmarks of America's consumer-driven economy, is on its way out. Budget shopping and saving are becoming the mantra for many households.

Hoyt said many households are likely socking away any additional money toward savings or using it to pay down debt. While this is a negative to consumer spending in the short-run, he sees it as a good thing for the economy in the longer run.

"If consumers are rebuilding their balance sheets and getting their financial house in order, they will be in a better position to make more discretionary purchases in the long run," Hoyt said.

Michael Niemira, chief retail economist with the International Council of Shopping Centers, agreed. He cited a 2008 consumer survey his group conducted that showed consumers used two-thirds of their rebate checks to pay down debt and only one-third of the money was spent in stores.

"I suspect this year the amount spent in stores will be even smaller," Niemira said.

But the other thing that's holding back spending, he said, is the fact that upper-income consumers are spending less.

To his point, a May Gallup poll showed that consumers earning $90,000 or more a year spent 15% less during the first half of May -- an average of $94 per day -- than they did in April. That made May the lowest average daily spending rate of the year, according to the survey.

Further, the Gallup survey said upper-income spending is off 48% from the first half of May 2008, also representing the sharpest year-to-year decline seen so far in 2009.

Since upper-income Americans spend a disproportionate share of the nation's disposable income, these shoppers also have to ramp up their purchases to boost overall consumer spending.

"I am not looking at consumers to lead the recovery," Niemira said. "The catalysts for the recovery will have to come from government spending, stock market recovery and other things."

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