Back-to-School Sales May Trail Last Year's Results

GALLUP NEWS SERVICE

PRINCETON, NJ -- As the critical Back-to-School sales season approaches, consumer credit perceptions trail those of a year ago, according to August's Experian/Gallup Personal Credit Index (PCI). The Index is at 84 -- down from 98 a year ago. The new PCI survey was conducted July 17-23, 2006.

Obviously, this is not good news for retailers, who are hoping consumers will keep spending in the face of today's high gas prices at the pump and a pronounced slowdown in housing. Nor is it good news for the overall U.S. economy in the months ahead.

The Personal Credit Index Declines Again

The PCI is at 84 this month, essentially unchanged from last month's 85. However, the PCI is down 14 points from last August's level of 98. The PCI was set at 100 at its inception in March 2005.

The Present Dimension is at 34, down 3 points from last month and 10 points from a year ago. The Future Dimension, now at 50, is up 2 points from last month but is down 4 points from last August's 54.

A Bad Time to Borrow

Four in 10 consumers say now is either a "very" or a "somewhat bad time" to borrow more money, while only 16% say it is a very or somewhat good time to borrow. A year ago, 30% of consumers said it was a bad time to borrow more money while 24% said it was a good time to do so.

The Back-to-School Sales Outlook

While consumers' current perceptions of their personal credit outlook are not much different from those of last month, they are well below those of a year ago. This suggests that consumers are currently less willing than they have been in the past to increase their spending by borrowing on their home equity or by using their credit cards. This may be of critical importance during the coming "Back-to-School" sales season.

Consumer incomes continue to lag. At the same time, consumers' real disposal incomes are being reduced by today's high gas prices at the pump. If consumers refuse to borrow, given higher interest rates and the deteriorating conditions in the real estate market, consumer spending is also likely to trail last year's levels.

Of course, the impact of gas and energy prices has been much greater on lower-income households than on other Americans. In fact, 65% of lower-income Americans say higher gas prices are causing them financial hardship. In turn, this suggests that retailers, restaurants, and other businesses that serve lower- and middle-income Americans are likely to suffer the most this Back-to-School season. On the other hand, specialty retailers and others serving higher-income households may be much less affected.

A poor Back-to-School sales season would be bad news not only for the nation's retailers, but also for the U.S. economy as a whole. It would reflect a significant consumer spending pullback in the face of high gas prices and increasing interest rates. It would also suggest that the Fed's "soft landing" forecast for the economy may soon be out of date.

Survey Methods

Results for the Experian/Gallup Personal Credit Index poll are based on telephone interviews with 1,003 adults, aged 18 and older, conducted July 17-23, 2006. For results based on the total sample of investors, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.