Will shoppers be naughty or nice to retailers this holiday season?
Retailers, of course, would consider it nice if shoppers spent the next four weeks rushing to cash registers with mounds of full-priced products. Instead, analysts are predicting a variation on "shop till you drop," in which consumers wear out shoe leather and electronic keypads hunting unrelentingly for bargains.
Five years after the financial crisis, unemployment has eased a bit and financial scars have started to heal, but there's still no widespread comfort with spending. And there's a large disparity between those who have healed a lot and those who have healed a little.
For example, while the unemployment rate has fallen from 10 percent to 7.3 percent, the rate is 11 percent for those who didn't complete high school. It's 3.8 percent for those with college educations. With homes still down in value and pay stagnant, studies by Pew Research suggest 93 percent of American households have less wealth now than in 2007.
And Americans are still insecure about their jobs. More than one-third of workers with incomes under $75,000 still worry they could lose their jobs, according to research by The Futures Co. And among people with incomes below $35,000, 45 percent remain worried. In all income groups, the majority of workers assume that if the ax comes down at work, they will have trouble finding a new job.
"The economic free fall of 2008 is starting to abate and people are finding a foothold," said Sarah Catlett, vice president of The Futures Co. "But they still aren't skipping down the road."
In 2008, 41 percent were worried they wouldn't have enough money to put food on the table, she said. Now, only 25 percent are worried about food. In 2008, 42 percent were worried they couldn't pay their monthly bills. Now, it's 33 percent.
After the hard times, people are more disciplined about spending money, she said. They are making expensive purchases like cars and dishwashers after delaying for years, but as they replace broken items they are setting priorities rather than using credit for whatever they want, she said.
That leaves a treacherous environment for retailers this season. As car sales have increased this year, retailers have noted more difficulty selling items like sweaters. Analysts say stores started discounting such items in October, and expect promotions throughout the holiday shopping season — a period which can contribute 20 to 40 percent of retailers' annual sales. The National Retail Federation estimates a moderate 3.9 percent increase in sales this holiday season.
Some economists think consumers are about ready to spend more. They are anticipating a stronger 2014.
Morgan Stanley economist Vincent Reinhart said in a recent report: "U.S. households have cut high-interest debt levels sharply, refinanced mortgages in rock-bottom fixed rates, and avoided piling on more debt." In addition, he notes, "a rising stock market and higher real estate valuations have lifted household net worth to new highs."
But while households have slashed mortgage debt by more than $1.2 trillion since the end of 2007, that has not freed all consumers to buy more. Many got out from under their mortgage debt through distressed sales and foreclosures, which left their credit scores tarnished and their ability to borrow impaired.
And while the stock market has climbed almost 170 percent since the worst point in early 2009, and provided great wealth to those who bought stock at the lows, most Americans don't own much stock. About 50 percent of Americans have stock in 401(k) mutual funds and other workplace retirement accounts. But with the average account at $50,000, stock market gains don't make up for the losses the middle class is still suffering in the value of their homes or their stagnant pay, said Richard Fry, economist for Pew Research.
Only about 20 percent of Americans invest directly in stocks, and Fry estimates that only the upper 7 percent of Americans have recovered more than they lost in the financial crisis.
The financial strength and confidence of the middle class is crucial to consumption, since 51 percent of American adults are within that group, said Fry. He says the group is bounded by incomes ranging from about $40,000 to $120,000.
The disparity in the recovery has shown up in bifurcated retail sales. Tiffany on Tuesday exceeded analysts' expectations, but stores that cater to the middle class or lower-income customers have disappointed investors. Among them: Wal-Mart, Target and Dollar Tree.
While the ultrawealthy seem to be relaxed about spending, there remains uneasiness even among the affluent, said George Walper, president of Spectrem Group. Many are baby boomer couples with two incomes. "They have been hit by tax changes, kids off to college and concerns about retirement," he said. "They were late to go back into the stock market, and their homes have been the slowest to recover."