Recent reports show U.S. consumers are spending again; some are even ditching the whole discount mentality in favor of luxury brands and making long-delayed big-ticket purchases.
The shift from buying cheaper necessities to comfortably splurging is shown in strong quarterly numbers from Whole Foods Market, Inc. (Nasdaq: WFMI) and Saks Inc. (NYSE: SKS). Whole Foods' quarterly profits doubled from the same period a year ago, while Saks reported a profit of 12 cents per share - higher than the predicted 5 cents per share.
Whole Foods products offer consumers a break from pinching pennies while not viewed as an out-to-dinner splurge. Consumers are putting themselves out there a little more and feel more comfortable buying some higher-end foods - and now the company's stock has gone up 83% since May 2009.
Businesses such as jewelers and travel agents are benefiting from this growing willingness to spend.
But don't misunderstand: Although U.S. consumers are venturing back from their spending hiatuses, they remain cautious buyers.
"Today if they buy, they are not willing to be embarrassed by overpaying," Jane Bayard, executive vice president at Warburg Realty Partnership of Manhattan, told The New York Times. "There were times in 2007, for example, when there were multiple offers and people paid millions over the asking price. Today, nobody wants to be the last monkey in the tree."
The state of consumer spending prompted last week's installment of Money Morning Question of the Week: What is your consumer-spending outlook for the rest of this year? What are you seeing? Compared with this time last year, has consumer-shopping activity picked up in your household or community? Have you adjusted your personal shopping habits? Why or why not?
Here is a collection of reader responses that advocate consumer responsibility and defensive investing.
Playing It Safe
I am retired and we have sufficient funds for our needs, at least for the moment. On the other hand, we are not spending on things beyond the basics for now, except that I am buying up silver coins on eBay, to the tune of a few hundred dollars per month.
We are debt-free, and have been for over seven years. I use my credit cards when necessary, but pay them off in full each month. For things that we need, or know that we will need down the road, we watch for sales and stock up at a discount. We watch our pennies and try to keep a healthy reserve. My wife and I often joke that if everyone lived like us, the economy would collapse in a week. We never eat out, except when we are away from home and have no choice. We have never even entered 90% or more of the stores that we pass on a frequent basis, but tend to return often to those where we find good value for our money. And I do quite a bit of the non-routine shopping on the Internet, also in an effort to save. We both agree that we already have too much stuff, and rather than adding to it, we are working to get rid of a bunch of it.
To be honest, we never really participated in the boom, choosing instead to pay off debt and put away money in my individual retirement account (IRA). Now we are not really participating in the bust either, but are being careful. Despite our current good situation, we are nervous about what may unfold, and trying to hedge our bets and keep some dry powder.
We have our house on the market, and have had perhaps a dozen couples look at it in the last couple of months, but no offers yet. Several have said that they are reluctant to buy a house until they feel that their job is more stable. If we are able to sell, we plan to move outside the United States for several years, to take advantage of a lower cost of living, while I work to build up my IRA, which I am not yet tapping into. It is self-directed, and I am over 50% in cash right now, with some limit orders to scalp some value stocks at a discount (a couple of these were filled on May 6). I am anticipating that there will be more opportunities to buy on the cheap in the coming months, and I have a list.
- Gordon F.
The "Strategic Default" Fakeout
What you're seeing are people who stopped paying their mortgages and have extra cash to burn for now....
- Pattrick W.
Only Spend What You Have
I am still very cautious in my spending (and tend to be a value shopper anyway, shopping sales whenever possible). I think that's one of the reasons why my family was not hit hard with the economic disaster. I could see problems coming long before they arrived - only didn't fully realize just how serious it would get - so, I had started becoming cautious long before it was the "in" thing to do.
My husband and I had worked hard to get the remainder of our mortgage paid, my car had been paid up for two years already, so no car payments. I waited and saved money before we painted the outside of house. I have saved enough to do the inside painting now and will proceed with replacing kitchen appliances as well as new energy-saving toilets.
My family is comfortable and not under undue stress simply because we live below our means and save for most big ticket items, or buy on 0% credit purchases and plan our monthly payments to have big ticket items repaid at least one month in advance of the due date. It is so well worth doing for the peace of mind we each experience and a continued positive in our relationships together.
I'm skeptical about the economy's recovery, given all the Federal government spending, bankrupt states, and so many houses still not sold despite decreases in price. Until we have a new president and Congress who follow sane fiscal principles, I don't think we will have lasting success in our country. Too many Americans have become accustomed to living way beyond their actual income, and I believe it will take a great awakening of some type for them to realize that spending more than you have does not work in the long run.
- Claire B.
Stop Spending, Be Prepared
[I'm] not spending like I used to. I paid off all my debt except the house and one of three cars. I put money into silver and gold for when we get hit with all this inflation due to our totally out of control spending by our government. This is not a joke - we will pay for what these socialist idiots are doing to us as a country.
The bigger the government, the smaller you are....and fewer freedoms. Just open your eyes. If I am right, and you are not prepared....you will be totally wiped out. If I'm wrong...I still got my stuff.
- Kent
Strategic Spending
Here in the UK, I'm spending - new motor home, gold, silver. It's only to off load fiat money - that stuff that governments print that I think will become worthless.
People are spending, and [there's a] lack of trust in the banks me thinks, rather than an end to the gloom. Which in my opinion hasn't even started yet...
- Jeff P.
Quality Over Quantity
Yes, I am buying a few things at both [Whole Foods and Saks]. Less buying - but more quality in the trimming back.
- Ariadne V.
Earth Gives the Real Fortune
As for me I need all the restful sleep I can get, and that means not thinking about whether all my hard earned money is going to disappear. My grandfather taught me that all fortune is based on ownership of the earth: farming, real estate, ranching, owning a home or income properties...the earth. This is the salt that gives flavor to otherwise bland investing.
I am a multi-millionaire now because I followed good advice...own the land, live on it, farm it, rent it...but first buy into it...and eventually you will return to it, where we all came from, our true mother earth. Bottom line is if it doesn't smell like fresh earth, it is a stinky investment.
- Patrick G.
[Editor's Note: Thanks to all who responded to our last installment of the Question of the Week feature regarding consumer spending. Be sure to answer next week's question: How are you responding to the market volatility? Have you retreated to safer investments? Are you scooping up the "bargain" stocks that others have dumped? Going forward, are you more likely, or less likely, to buy stocks? What concerns or excites you about the market's recent roller-coaster ride?
Send your answers to [email protected]!
Is there a topic you want to see covered as a Question of the Week feature? Then let us know by e-mailing Money Morning at [email protected]. Make sure to reference "question of the week suggestion" in the subject line. We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate - via e-mail or by posting their comments directly on the Money Morning Web site.]
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Question of the Week Feature