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Diamond Consumer Attitude Will Go Forward In August

2002: Diamond Consumer Attitude in July and August

Sep. 2002

A plummeting stock market and corporate scandals have consumers holding their purses and leaving retailers questioning the upcoming holiday sales.

Despite the volatile economy and falling consumer confidence, however, the National Retail Federation reports that overall retail sales increased slightly in July and similar released by the Commerce Department show that total retail sales rose 1.2 percent seasonally adjusted from June, but just 0.2 percent excluding autos.

The Conference Board’s Consumer Confidence Index, meanwhile-- which declined in June -- tumbled further in July. The Index now stands at 97.1 (1985=100), down sharply from 106.3 last month. The Present Situation Index fell to 99.2, down from 104.9. The Expectations Index fell to 95.7, down from 107.2 last month.

"The erosion in consumer confidence represents a significant deterioration in consumer attitudes," says Lynn Franco, Director of The Conference Board’s Consumer Research Center. "The continued decline in the value of stock market portfolios, coupled with ongoing reports of corporate scandals, have taken a toll on consumer confidence. The continued decline in the Present Situation Index suggests that consumers would tend to curb their spending in the absence of offsetting incentives."

Another study showed slightly better but similar results, with July same-store sales increasing 2.6 percent over the same period last year, but were down from June’s 5.1 percent, according to the Bank of Tokyo-Mitsubishi, which tracks retailers nationwide. Much of the increase, however, is being felt at the lower end of the market, rather than in fashion and luxury goods. For example, while apparel-chain sales decreased 3.4 percent from last year, discount stores’ comparable sales rose 4.1 percent.

Retailers Reluctant to Stock Holiday Inventory

The unimpressive sales reports in July follow a strong retailing month in June that left inventories depleted. Anxious retailers, however, seem reluctant to restock. The JA New York show, for example, proved that jewelers are wary, as sluggish sales were reported by many diamond and jewelry vendors.

Moving forward, Michael P. Niemira, an analyst at Bank of Tokyo-Mitsubishi, says retail will likely be troubled by speculation that economic uncertainty is prompting consumers to pull back. He predicts, however, that August sales will increase 3.5 percent compared the same month last year.

The National Retail Federation remains optimistic, citing the summer’s normal sluggishness.

"July is traditionally a slower month for retail, with lots of clearance sales on summer items as stores transition over to their Fall inventory," said NRF Chief Economist Rosalind Wells. "Going forward, August will be more indicative of future sales trends. So far, year-over-year sales results point to a continuation of the gains we have forecast for the year."

According to the Conference board, however, consumers" expectations for the next six months have soured. Those expecting business conditions to deteriorate increased from 7.1 percent to 9.2 percent. Those anticipating an improvement in the months ahead fell from 23.7 percent to 20.9 percent.


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