Consumers are cutting back on their plans to purchase major appliances and to make major home improvements as sky-high gasoline prices continue to depress discretionary spending and consumer confidence, a new study shows.
According to BIGresearch's May Consumer Intentions and Actions Survey, purchase intentions in May for big-ticket investments like cars, furniture, majaps and home remodeling were all down from April, while prices at the gas pump continued to rise.
"It's tough for customers to think about making big-ticket purchases and long-term debt obligations when daily budgets are being stretched to their limits with no end in sight," said Gary Drenik, president/CEO of BIGresearch, a market intelligence firm based here that provides analysis of consumer behavior. "Gas price increases have entered unchartered territory as consumers anticipated prices to reach $3.32 a gallon by Father's Day. With prices for mid-grade and premium gas topping $3.41 and $3.54 a gallon and $3.22 for regular, according to AAA, consumers underestimated how high gas prices would go and are making changes to their purchase behaviors to cope."
Specifically, only 5.9 percent of the 8,353 consumers surveyed in May said they plan to make a major appliance purchase within the next six months, down from 7.4 percent in April. Majaps showed the biggest decline compared with home improvements (9.5 percent, down from 10.5 percent), furniture (8.6 percent, down from 9.9 percent) and autos (10.9 percent, down from 11.6 percent).
The reluctance to spend was mirrored by a drop in consumer confidence. Only 22.8 percent said their personal financial situation has improved compared with last year at this time, while 33.3 percent said they are worse off. Just under 44 percent said their financial situation remained unchanged.
The pressure on big-ticket goods was also deduced by Goldman Sachs analyst Matthew Fassler, who triangulated various data points across retail, including:
- soft auto sales;
- sharply lowered earnings expectations from Circuit City, down from already depressed levels;
- Bed, Bath & Beyond's first-ever earnings shortfall, driven by anemic sales; and
- average ticket declines at The Home Depot and Lowe's
But unlike BIGresearch, Fassler largely attributes the weakness to declining cash-out refinancing dollars that are depriving consumers of incremental liquidity.