Consumers are shifting their spending toward purchasing cars, furniture or dining out more frequently and “those purchases are still moving higher at a decent clip,” said Jennifer Lee, a senior economist at BMO Capital Markets, the Toronto-based advisory services firm.
Too many consumers are simply strapped for cash because of a large amount of student loans and credit cards debt and prefer to spend their extra money on events or things they can do with their friends.
“With our net income, we prefer experiential goods - things that we can share with others such as nice dinner, going to a movie, taking a road trip, seeing a show or attending a sporting event,” said Emily Sands, a sophomore at the University of Indianapolis in Indiana studying finance and Spanish. “On behalf of Millennials, I would like to say that we are broke. The average student has about $30,000 in student-loan debt upon graduating college, so we are trying to save money where we can.”
Shopping for Christmas gifts is a not a priority since Sands is busy juggling her classes, studying, working and building her professional experiences through on-campus organizations. When Sands has a free moment to shop online, she still prefers to buy “experiential gifts such as massages or tickets to an event.”
Lower gasoline prices are a boon to consumers and their budgets, prompting some of them to spend their money on going out to eat more and opting to save this discretionary income, said Eyl.
Since the majority of savings from the lower gasoline prices arrived in 2014 and earlier this year, consumers are now spending the savings they accumulated, said Lee.
“Prices were down as much as 36.8% at one point and this year the gains have not been as pronounced, but there are still savings to be had,” she said.
When oil prices started their descent in the summer of 2014, the personal savings rate was 4.6% to 4.8%. Half a year later, they rose to as high as 5.4%, but now the rate is back to 4.8%, Lee said.Shoppers are opting to spend their money on food and tech and electronic accessories such as Fitbits, Apple Watches, smartphones, Segways and hoverboards, said Shah Karim, CEO of SafeRock, a Dumont, N.J.-based retail analytics and consulting firm.
“It’s not just clothing anymore,” he said. “Retailers will have a terrible financial season, cutting margins and throwing away profits. This means great deals for consumers as stores try to clear excess inventory.”
Although people tend to shop less when gas prices are higher, consumers do not always return when they decline, Karim said.
“This is deadly for malls, department stores and specialty stores,” he said.
Some people do not trust that gas prices will remain inexpensive and they choose to pay down debt or save it for an emergency, said William Clayton, president of Hudson’s Hill, a specialty menswear retailer in Greensboro, N.C. Even though companies are also benefitting from lower energy costs, the savings is not being translated to consumers.
“Unfortunately, the lowered gas and transportation prices do not seem to have affected the end consumer price of many goods as companies are just observing the added profits,” he said.
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