This is an archived article that was published on sltrib.com in 2010, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
It's shaping up to be another tough shopping season for retailers as recession-weary consumers approach the holidays with a renewed sense of restraint.
And unlike some of the past economic downturns, many middle-income families aren't likely to return to their pre-recession spending ways even after a recovery takes a stronger hold.
"Some of the habits we have learned over the past three years are going to really stick with us," said Ed Farrell, director of the Consumer Reports National Research Center.
Fewer people want to carry credit card balances and some have sworn off using credit cards altogether. Many families are spending less and saving more. Others are sticking to budgets, some for the first time. More are shopping at thrift stores, buying store brands, comparison shopping and looking not only for the cheapest buy, but the best value for their dollars.
And that stands to fundamentally change the way the nation's retail sector does business. Many retailers even the big chain stores have relied for their success on a holiday-spending binge fueled by easy credit, ever-increasing credit limits on credit cards and home equity loans, and an "I'll worry about paying for it later" mentality.
But over the past year, banks stung by big losses have slashed limits on credit cards and home equity lines of credit. Credit overall is more difficult to get. And it will take many families years to financially recover from the effects of layoffs, pay cuts, bankruptcy and foreclosure brought on by the Great Recession.
So it comes as no surprise heading into the holiday shopping season that retail sales, although expected to be better than last year, are forecast to be somewhat lackluster. The International Council of Shopping Centers index that measures revenue at stores open at least a year showed only a 1.6 percent increase in October, the weakest performance since April's 0.8 percent rise. October's numbers represented a slowdown from September, when revenue rose 2.6 percent.
And even though the recession is officially over, about 40 percent of Americans surveyed by the USAA Foundation said they still plan to spend less on gifts than they did last year. And one in 10 said they are opting out altogether on holiday purchases, and don't plan to spend anything on gifts, according to the foundation, the research and education arm of financial services company USAA.
Although this fundamental shift will have painful short-term effects on the emerging recovery, long term it could be a plus for the Utah and U.S. economies, economists say.
But today, in many Utah households, the pain is readily apparent. Robert Hoff and wife Rhonda of Salt Lake City are among those who will be opting out of buying much of anything for the holidays. Robert Hoff has been out of work since being laid off from his job as an airline dispatcher in May 2009. He and his wife have since filed for bankruptcy, surviving on her salary at a call center company.
The couple are trying for a mortgage modification because their house payment eats up most of their monthly income. They are approaching the holidays knowing they can't buy much in the way of presents for family, including nieces and nephews.
"The house payment takes up just about everything we earn," Robert Hoff said.
But even among those with the means to spend during the holidays, many are still scaling back. The big reason? Over the past year, credit card holders have been hit with an array of new and increased fees, and interest rate increases. Even the nation's new credit card reform law that went into effect earlier this year didn't help as much as many had hoped.
"Fewer people are going to be using credit cards this holiday season," said Farrell of the Consumer Reports National Research Center. "And people don't spend as freely when they're using cash."
"That's why the thing that's really going to drive holiday sales this year is 'the deal,' " Farrell said. "Consumers say finding the best price, the best deal, is even more important this year than last" because more are parting with cash.
For the first year ever, Jan Douglas and her husband have vowed not to use credit cards this holiday season. "With the way the credit card industry is going, and how high rates have gone, I don't want to pay for Christmas for the next two years," Jan Douglas said. "It's going to take discipline, but I'm going to do it."
Although the Salt Lake City couple used to spend about $500 on each of her five children's families, this year the couple is scaling back to $200 per family.
Aside from consumers more carefully watching their expenditures, retailers also must contend with shifting buying behavior, because many have changed what they spend their money on during the holidays.
The Douglas family is thinking of buying loved ones more practical gifts. For her adult children, Jan Douglas is looking at food storage or a gift card to a local grocery store.
Becky Rosenthal of Salt Lake City, who was laid off in April 2009 from a marketing job, is re-employed. But the way she approaches the holidays changed during her bout with unemployment.
Last year, she and her husband made donations to charities instead of giving gifts to family members. They also spent less on the holidays. "I think we realized that we didn't feel the need to be so extravagant," she said.
Gifts to charities especially those given on behalf of a friend or loved one and those with a charitable component have grown in popularity in recent years.
"Giving to people who really need it can really help rev up the economy," said Patrick Partridge of Sandy.
This shift has prompted retailers to respond by offering promotions with a charitable bent, such as the recent offer good at Gap, Banana Republic and Old Navy stores. Their parent company issued a coupon worth 30 percent off a purchase, with 5 percent of what was spent going to a charity designated by the shopper.
The question remains, though, how our nation's economy can cope with these shifts in consumer behavior, given that consumer spending is such a large driving force. Salt Lake City economist Jeff Thredgold, a consultant to Zions Bank, is among a number of analysts who believe the effects of this recession on spending levels and habits will linger.
For Thredgold, a lot of that has to do with the availability of credit. Card issuers are being more selective or aren't extending as much credit. And home equity loans and lines of credit which bailed out many American families who piled on the debt in the 2000s no longer are an option for many borrowers because of tighter lending criteria and falling home values.
"Certainly, the days of using credit cards for things you can't afford and then using your home equity to pay them off are over," he said.
In the short term, less spending and debt, and more saving, certainly will hamper the speed at which the nation's and Utah's economies recover, mostly because of the fact that they rely to such a large degree on consumer spending, he said.
But over the long term, better financial habits are a plus for the economy, Thredgold believes. Those who save more and keep their spending under control often rely less on Social Security and have more money to spend beyond their working years into retirement. Their spending often drops to a lesser degree during retirement and even in bad financial times than those with no savings and high debt loads.
In other words, the country's economy will survive this shift, and years from now it and the consumers who are part of it probably will benefit as a result.
But going into the third recession holiday, there is plenty of discomfort to go around. Kristin Johnson, director of housing for Cornerstone Financial Education, which provides debt and foreclosure counseling, says the holidays can be especially hard on those affected by recession because of how quickly the food, gifts and entertaining costs pile up.
Many are fearful of telling their families and extended families they need to forgo all the festivities and gift-giving. Others are worried about what their children might think. Her advice is to "sit down now and say, 'We don't have money for this.' "
"Be honest about your financial situation your family may understand more than you think they will," she said. "Now, more than anytime in the past several years, I think people understand the holidays aren't about giving big expensive gifts that you can't afford."
How much do you plan to spend on holidays this year?
U.S. consumers on average expect to spend $689 each this year, up slightly from $682 last year, according to the 2010 Holiday Consumer Intentions and Actions Survey, conducted by BIGresearch for the National Retail Federation. Here's where the money will go:
Greeting cards/postage $26.10
Source: National Retail Federation
The most-wanted gifts this year
1 • Cash
2 • Electronics
3 • Gift cards
4 • Clothing
5 • Jewelry
Source: Consumer Reports National Research Center
How to have a more frugal holiday
1. Set guidelines early. Now is the time to let your family even extended family know if you plan to do things a bit differently this year, such as spending less or no longer buying some family members gifts.
2. Consider such cost-cutting strategies as drawing names among family members for gifts, donating to a charity instead of buying gifts, buying only for children or exchanging only handmade (or hand-cooked) gifts.
3. Make it a potluck dinner. If you're hosting a big holiday meal, ask your guests to each bring a side dish to share.
4. Enjoy the free activities of the season. Playing or sledding in the snow in the park or checking out free holiday light displays are free.