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Consumer Spending Trends in the Sixth District

March 2008

Moderator: Welcome to Southeastern Economic Perspectives, an occasional podcast from the Federal Reserve Bank of Atlanta. We're speaking today with Whitney Mancuso, a senior economic analyst who is a specialist in real estate, retail, and state government. Whitney has a window on consumer spending and will be speaking with me about consumer spending trends in the Sixth District. Thanks for speaking with me, Whitney.

Whitney MancusoWhitney Mancuso: It's my pleasure.

Moderator: Many recent news articles have focused on consumer spending and a drop in same-store sales. Can you give any insight into what you're hearing from your contacts regarding retail sales?

Mancuso: Well, Jean, our contacts are also reporting year-over-year declines in sales. For some time now, sales of housing-related products such as furniture and construction products have been weak because of continued softness in the District's housing market. What's more, the rise in gasoline prices appears to be taking a larger share of consumers' disposable income and depressing retail sales further.

Moderator: Do you have any hard data at the regional level that supports these claims?

Mancuso: We do, but it lags national data a bit. We look at retail sales tax revenue growth by state. The most recent data reflects retail activity in December 2007, and these reports support the view of a continued slowing trend in retail sales. Across the District, sales tax revenue growth was flat to slightly down on a year-over-year basis during December.

Moderator: How are retailers responding to weaker sales?

Mancuso: Overall, our contacts tell us that retailers are proceeding cautiously. They are closely monitoring all parts of their business including inventories, employment levels and hours, and even expansion plans. We have heard that many retailers have put expansion plans on hold for the time being.

Moderator: Does a drop in sales and a reduction in inventory ordered signal that retailers are concerned about sales for Q2 and Q3?

Mancuso: I think that is a fair assessment. Retailers are concerned and being careful. We've also picked up information from our contacts in the trucking industry that indicates deliveries to retail establishments are weaker than they were a year ago.

Moderator: What about sales of larger items, like vehicles?

Mancuso: Larger items, or durables, remain weak. Sales of items like appliances and furniture remain below year-ago levels. That's tied to the weakness in housing that I noted a moment ago. Vehicle sales have also slowed in the District. Contacts report that sales of domestic and foreign brands have been weak. Over the past few years we've seen soft sales at domestic brand dealers while sales of most foreign brands remained quite positive. This has changed. Our contacts tell us that now sales at foreign-brand dealerships are decelerating as well. All dealers appear to have trimmed inventories.

Moderator: Another industry that's important in the Southeast is tourism. What are some of the trends you're seeing there?

Mancuso: Tourism has been quite strong, but some contacts are concerned about future activity. Lower occupancy rates are expected, and tourists may well prove more conservative in their spending. Some of our contacts have noted that corporate travel has slowed a little, too.

Moderator: Do you have any insight from your contacts on what might be the reason that consumers are cautious in their spending?

Mancuso: As I mentioned earlier disposable income is getting squeezed—gas prices and, for a fair number of households, mortgage payments have risen or will rise shortly. Overall, it appears that consumers are uncertain. They hear about the housing market weakness and the slide in home values. They read about cutbacks in some industries, and on top of that they see their energy and grocery bills increasing. So my sense is that they are deciding to play it safe and be more conservative with their spending.We're also seeing consumer confidence slipping in a number of regional measures. For example, the University of Florida's Bureau of Economic and Business Research monthly consumer confidence index is well below year-ago levels. The University of Alabama, Mercer University in Georgia, and Middle Tennessee State University also measure consumer confidence and their results are the same: Confidence is down.

Moderator: So the overall picture for consumer spending is subdued?

Mancuso: I believe that's right. That's the sentiment at this time. Given the importance of consumption to the overall performance of the national economy,consumer spending bears watching going forward.

Moderator: Thank you, Whitney. Again, we've been speaking with Whitney Mancuso, an economic analyst at the Atlanta Fed. This concludes our Southeastern Economic Perspectives podcast. Thank you for listening and please return for more podcasts. If you have comments, please send us e-mail at podcast@frbatlanta.org.