Worried consumers tighten their pocketbooks

By William Sluis
Chicago Tribune

After many months of lugging the economy's wagon through recession and mire, there are signs the hard-pulling, 20-mule team of consumers is running out of stamina.

Blame a harsh winter, worries about war and uncertainties about jobs. For whatever reason, Americans seem to be shifting their focus from spending to saving.

In the meantime, spring fashions are lingering on shelves. Car lots are bulging with unsold vehicles, despite eye-popping incentives.

That brings us to Thursday's report on February retail sales. Chicago economist Brian Wesbury is looking for a decline of 0.4 percent, after a 0.9 percent drop in January.

"Consumers are operating in a pea soup of uncertainty, and until it lifts, they are focusing their spending on home heating fuel and gasoline, which have gone through the roof," he said. "Rising energy costs act like a giant tax on consumers."

Wesbury, of Griffin, Kubik, Stephens & Thompson, an investment firm, said the hardest-hit sector has been car sales, amid the uncommonly cold weather and huge snowstorms.

When autos are excluded, last month's retail figure would have shown a tiny gain of 0.1 percent, he said. "But sales of duct tape and plastic sheeting were up dramatically," he added.

"Consumers still have an ability to keep on spending," Wesbury said, noting that incomes continue to grow faster than inflation. "When the fog lifts, the economy will strengthen."

Inflation is on the agenda Friday, with the release of the February producer price index. An unexpected leap of 1.6 percent in January was largely blamed on fuel costs; economists this time are looking for an advance of 0.7 percent.

Jitters on Wall Street continue unabated, with few signs the stock market can make any progress.

The next hurdle for investors will be first-quarter corporate profits, which will begin rolling out in about three weeks.

Chicago investment manager William Hummer expects year-over-year gains of about 10 percent, largely because of cost-cutting and layoffs.

"Unfortunately, companies are running scared, and they are pruning staffs because they can't raise prices. They are doing all they can to control labor costs," said Hummer, of Wayne Hummer Investments.

Further, Hummer said, "the Iraq problem will be washed away. Investor sentiment will change quite quickly as the economy improves."