Thursday, July 08, 2010

Consumers Won't Spend And Retailers Won't Recover

The American consumer may finally be going down for the count.  Consumers aren't prying open their wallets:

Consumer borrowing fell again in May, more evidence that Americans remain jittery over their finances and the durability of the economic recovery. 

The Federal Reserve said Thursday that borrowing dropped by $9.1 billion in May. It also said borrowing declined by $14.9 billion in April, revising an initial estimate that showed a gain of $995 million for the month.
This has the predictable effect of hurting retailers, and no amount of discount offers can improve their prospects: 

Stores deepened discounts more than planned in June to draw recession-scarred shoppers to buy summer tops and other merchandise. But shoppers bought mostly items they needed, resulting in small revenue gains.

We'll see the pain show up when Q3's GDP proves to be disappointing even after accounting for back-to-school spending.  Retailers looking for innovative sales tactics should consider posting strippers at their entrances.  If Wal-Mart can offer free greetings from a geezer, other retailers need to one-up them and offer free dinner and drinks.