RETAIL: Credit crunch also comes from consumers

Surveys show buyers reaching for cash, limiting purchases

By CHRIS BAGLEY - Staff Writer | Wednesday, November 26, 2008 10:24 AM PST ∞

It might end up being a blue, blue Christmas on Southwest County's retail scene, as shoppers hesitate to dig themselves deeper into debt.

Consumer surveys and reports from national retailers show more consumers cutting back on their use of credit cards in favor of the cash in their pockets. Some major credit card issuers are raising fees and imposing spending limits, but analysts have said that shoppers' caution may be the more important factor.

Shoppers are planning to buy fewer gifts in all major categories, from clothing to toys to jewelry, according to a survey for the National Retail Federation earlier this month.

"I'm trying not to use my credit card," Murrieta resident Jennifer Williams said. "We've been just paying cash and not spending extra, because it would really kill us later."

Williams' work week as an oral-surgery assistant was recently cut to 28 hours from 36 hours and the construction firm where her husband works has been getting fewer jobs. Then there are the monthly payments for the mortgage and their child's braces. Several neighbors in their townhouse complex have been washed out by foreclosure, leaving those who remain to pay larger monthly fees.

Such situations are common, and are translating into less spending at stores of all stripes, Carlsbad retail analyst George Whalin said. Consumers are also uncertain about the direction the overall economy will take in the next year, he said.

"People aren't buying anything," Whalin said.

While the credit crunch is teaching consumers to spend more carefully, the immediate effect is a revenue gap for stores, said Curtis Arnold, founder of CreditRatings.com.

Department stores in Riverside and San Bernardino counties didn't begin large-scale holiday hiring in October as they did in most previous years. Clothing and most other kinds of stores actually cut more jobs than they created, a state agency reported Friday.

Some department stores have seen swings in spending around payday cycles during the last three months, a sign that consumers are buying only what they can immediately purchase with cash.

Amy Roland, who owns Wee Little Sprouts in Fallbrook, said the store's sales of children's clothing and toys is off this year.

Roland said she has noticed customers making smaller purchases, sometimes returning a week or two later when they feel they can afford it. The store's other location, in Old Town Temecula, closed in April; Roland said the weakening economy and high gas prices were partly to blame.

A state agency estimates unemployment in Riverside County at more than 9.5 percent. Just more than 3 percent of bank-issued credit cards there are longer than two months behind on payments, according to the Federal Reserve Bank of New York, which collects nationwide data on consumer credit. San Diego County's rate of 1.85 percent was close to the national average.

The total amount of consumer credit outstanding rose at an annual rate of 1.3 percent in the July-September period, its slowest rate in more than five years, according to the U.S. Federal Reserve Board.

Many Americans are using cash or debit cards because they are being forced to. Laura Nishikawa, an analyst at Innovest Strategic Value Advisors Inc., a New York investment research firm, said the number of credit cards that consumers have fell 5 percent in the second quarter from the first quarter, based on data from Visa, Master Card and American Express. That was mainly because consumers received fewer credit card offers, she said.

The Associated Press contributed to this article. Contact staff writer Chris Bagley at (951) 676-4315, ext. 5444 or cbagley@californian.com. Bagley blogs about local economic trends at http://bizblogs.nctimes.com.