Minor Retail Impact Seen in Sub-Prime Mortgage Crisis

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Minor Retail Impact Seen in Sub-Prime Mortgage Crisis

NEW YORK -- Retailers need not be overly concerned about the crisis in the sub-prime mortgage market, according to a new report by Citigroup Economist Steven Weiting.

Sub-prime borrowers represent only about 4 percent of households and 2 percent of consumer spending, said Weiting in the report, released yesterday.

The recent rise in sub-prime mortgage delinquencies is not expected to impact overall consumption trends, according to Weiting. However, he does caution that rising interest payments for the sub-prime borrower will likely place stress on household finances and could impact their spending.

Retailers, particularly discounters, select department stores and dollar stores (to a lesser extent) could face modest near-term headwinds as a portion of their customer base may forgo some discretionary spending to meet rising debt repayments.

Citigroup Retailing Analyst Deborah Weinswig predicted that the bottom 40 percent of sub-prime consumers by income will need to reduce discretionary spending to meet mortgage obligations because they are likely to have limited savings and a negative savings rate. Those with higher income may just forego savings.