Spending habits change
As gasoline prices continue to climb, household bills spike and incomes dip, families are growing more cautious in their spending.
As concerns of a recession mount, shoppers' concerns are becoming more evident. In just two months, the number of people who said the U.S. is in or heading toward a recession or economic slowdown grew from 79 percent to 84 percent, according to the NPD Group, a market research firm.
"Consumers are in a massive retreat from spending both for major purchases and day-to-day purchases such as driving and food," said George Rosenbaum, analyst at Chicago-based retail research firm Leo J. Shapiro and Associates Inc.
He believes the reasons for the pullback are consumers are insecure with their jobs and worried that their income is not increasing as fast as inflation.
The one bright spot is in car sales, according to industry experts.
"The demand for new cars has sparked in the last four weeks," Rosenbaum said. The average time to keep a car is eight years, he said. However, drivers are heading to the dealer before that mark in an effort to get rid of their aging gas guzzler for something more economical.
This was the case for Jeffrey Kamin, 22, who traded in his 8-month-old Chevy Silverado 1500 for a Mitsubishi Eclipse. "My pocketbook was getting killed," said Kamin who was spending nearly $500 a month at the gas pump for his commute from Woodstock to Hoffman Estates where he works.
Emal Noor, general manager at Biggers Mitsubishi in Elgin, has seen a steady increase in the number of people looking to trade in their big SUVs for entry level sedans. Fuel efficiency is such a big factor, dealers are including miles per gallon in their advertising, Noor said.
Other areas in which survey respondents said they are less likely to pull back their spending include toys, video games and home improvement, according to NPD Group.
Industries that will most likely feel the pinch of consumers' spending cutbacks are dining out, apparel and home entertainment, the survey found.
"Consumers are pulling back on all spending in which they feel they have some control," Rosenbaum said.
He believes the impact on the retailer is "very substantial."
The owner of Creating Your Style, a wholesale and retail women's apparel business in Naperville, is feeling the pinch. "Everyone is very cautious in their spending. People are looking for bargains and deals," said owner Tracy Paulson.
She expects her sales have dipped about 30 percent from last year.
The shift in spending has prompted her to downsize. She is planning to close the showroom that she opened in October and operate out of the basement location on Webster Street where she primarily sells to her consultants who do home shows.
"I'm tightening the reins," she said. Paulson, like many retailers, is hoping the U.S. government rebate checks will help spark spending.
However, about 42 percent of respondents to the NPD survey said they plan to use their money to pay off bills. About 12 percent of people plan to spend their money on discretionary items.
"We have to remind people to continue to shop," Paulson said.