Columbus, OH, October 7, 2005 -- Retail Forward's Future Spending Index turned sharply lower in October, indicating that shoppers intend to curtail their spending this month. The index dropped to 94.0 from 104.6 in September.
"The economic side effects of Hurricanes Katrina and Rita have sent a collective shudder through the consumer sector," said Steve Spiwak, an economist with Retail Forward. "Higher energy costs are the main culprit for the falloff in spending intentions for October. But the storms also have heightened concerns about job security and the direction of equity markets, contributing to the soft near-term outlook."
In fact, this month's ShopperScape results show that higher gas prices and charitable contributions in the wake of the hurricanes currently are causing a majority of shoppers to think twice about opening their wallets. The sectors that should bear the brunt of any spending cutbacks are entertainment-related, such as vacations and eating out. And while there is still a lot of uncertainty about the longer-term effects, results also suggest that the hurricane impact likely will diminish as the holidays approach.
October's falloff in spending plans is due to greater pessimism among Up and Middle Market households, segments that had exhibited some strength in recent months. Interestingly, plans for Down Market households held nearly steady. This is partly because spending plans for the Down Market segment had already fallen steeply in the prior two months in response to the impact of rising energy costs.
The October Future Spending Index for Up Market households (incomes greater than $75,000) slid to 91.6 from 98.1 in September. A gyrating stock market in the aftermath of the hurricanes has increased worries about investment worth. Coupled with a slowdown in home buying, this is restraining the willingness to spend in this segment. At the same time, Up Market households reported that incomes were better than last year, offsetting the impact of elevated gasoline prices and cushioning the decline in October spending intentions.
The index for Middle Market households (incomes between $22,500 and $75,000) dropped from 110.9 in September to 93.2 in October. The mood in this segment is decidedly more downbeat, with assessments of jobs, incomes, debt loads and investments moderating from last month. Middle Market home buying also decreased from September's sharp increase.
While ShopperScape results indicate that higher gasoline prices have had a disparate impact on household cash-flow among the less-affluent, the spending index for Down Market households (incomes less than $22,500) held nearly steady at 102.6 in October. Views of the job situation-the key driver of spending in this cohort-improved this month, offsetting softer growth in disposable incomes.
The increase in gas prices has the majority of consumers keeping a closer watch on their spending, according to ShopperScape. But one retail channel that may stand to benefit is the Internet, as some shoppers say they are changing their shopping habits in an effort to save money.
About two-thirds (67%) of all shoppers report they are spending much/somewhat less due to the recent increase in gas prices. Down (77%) and Middle (70%) Market consumers are cutting back the most (Figure 2).
One-third of all households report that their spending has not changed in response to pump prices. Least affected is the Up Market, with 42% of the segment stating that their spending has not changed.
Sixteen percent of shoppers report shopping much/somewhat more online due to the increase in gas prices, with this percentage rising along with income levels. On the other hand, the majority of shoppers (60%) have not changed their online shopping habits despite paying more to fill up their tanks.
