SAGE Advice: 2007 Holiday Spending Watch — Dreaming of a Perfect Storm

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By: Leo Shapiro, Steve Yahn, and Erik Shapiro

Newspaper and their advertisers need brace for trouble. Turbulence in financial and housing markets, high oil prices and a sick dollar, the war and politics, and a related deterioration of consumer confidence in their ability to meet their financial obligations may meet in mid-December to create a perfect storm that could sink an already dismal prospect for holiday spending.

Christmas Spending Plans
The Leo J. Shapiro and Associates national poll finds only 19 percent of consumers in September 2007 plan to spend more this year than last which is within a point of the September 2006 reading. More troubling, four in ten (42 percent) of those expecting to spend more don?t plan to buy more this year than last. They say they will have to spend more this year than last because prices will be higher.

Inflation Fears
While the Fed says soothing words about inflation as it directs attention to the threat of recession, the percent of consumers reporting they experienced higher prices rose three points to 70 percent in September up from 67 percent in August. The percent who expect inflation to accelerate in the coming months moves up two points to 29 percent in September from 27 percent in August.

Fewer consumers in September than in August or any time in the past year report they plan to buy homes in the coming year and fewer report reading ads, visiting houses, talking to realtors as they shop actively to buy housing.

Record foreclosure levels are flooding the streets with former homeowners and the markets with formerly owned homes. More consumers in September, 29%, than in August, 25%, expect housing prices to decline.

Housing is a major category of business handled by the private sector and a major store of consumer wealth. House price deflation hits home owning couples in their ego and equity, right where they live.

Consumer Financial Balance
Consumers take the prices of everything they buy into account and balance prices against their incomes and the value what they own [including their incredible shrinking house equity]. The Fed, by contrast, focuses on the ?core inflation rate? which excludes price changes for food and gasoline and counts deflated housing prices as a plus!

The Shapiro monthly Consumer Balance Index (CBI) which tracks consumer perception of the balance between their ability to spend and their spending obligations falls two points from 98 in August to 96 in September, down eight points from 104 in July.

Americans believe, though they may not always be able to follow, Ben Franklin?s maxim ?pay what you owe and you will know what you own.?
The Shapiro monthly Financial Pressure Index tracks how much pressure consumers are experiencing as they strive to buy what they need and pay what they owe. The Financial Pressure Index rises nine points from 74 in August to 83 in September ? the highest Index in the past twelve months.

Bottom Line

Why shouldn?t newspapers give merchants a way to respond collectively to a call for concerting action to make this an exciting Christmas for consumers in these troubled times? Merchants do not need to set aside their fierce determination to beat competition in order to serve local consumers.

Merchants have the power to print coupons which are currency, albeit currency that is not as readily convertible as the currency that the Federal Reserve is injecting into the national economy. But, given Gresham?s Law that bad money drives out good, consumers will strive to spend all their coupons as they spend their cash.

Encourage merchants to flood the market with coupons to inject money into the local economy. Given the joy that comes from giving, encourage merchants to promise to donate to charity a fixed percent of coupons redeemed by fortunate consumers.

Go a step further: make it easy for merchants to fulfill their promise to contribute coupons to charity. Maintain a central ?bank? to which the merchant can contribute coupons with the assurance that the coupons will be used to buy products for the poor.

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