The Uncertain Consumer

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The Uncertain Consumer

With plunging home values, the ongoing war in Iraq and unpredictable gas prices, consumers have a lot on their plate to swallow in the upcoming year.

House values are only partway through what looks to be a sky dive from a plane with no parachute. Since its peak in April of this year, median home prices dropped nearly $40,000, according to data from the National Association of Realtors. As homes are consumers' No. 1 asset, falling values mean less spending overall as consumer's perceived wealth declines along with their home value. The uncertainty in the market will continue to pummel worrisome consumers and restrict spending.

Conflict overseas also impairs retailers' bottom lines because of its affect on consumers' confidence and security. Although consumers are not as influenced by foreign wars as in the past – such as during the earlier Gulf War and the Vietnam conflict – increased tensions overseas and terror threats at home will cause many to remain cautious with spending, and possibly, curtail traveling. Look for frustration towards the government and uncertainty about economic forecasts, all leading to withdrawn confidence and spending.

Gas prices are certainly the most important issue facing consumers that will affect retailers in 2007. Volatility in the market will cause a rollercoaster affect at the pump, and illogical consumer behavior. When prices rise, fewer gallons are pumped per purchase. Meanwhile, in-store dollars are likely to remain stable, or even increase, as trips to fill up become more frequent.

Consumers may want to lessen demand for gas to drive down prices, but they have not, and can not reduce consumption. Consumers are thirsty for oil, and no electric-hybrid, flex-fuel, or gas boycott will change the demand for gasoline. In today's American society, gasoline is a necessity, just as much as water. Consumers will kick and scream and drive 10 miles further for cheap gas as pump prices rise. The media will spark a frenzy of "gas gouging" accusations and retailers will bear the brunt of it, all while dealing with increased drive-offs by angry consumers taking the blame out on local stations.

The consumer mindset is best summed up with a statement by economic forecaster Maureen Maguire of ThinkResearch: "Uncertainty is bad for financial markets...Consumers in particular hate uncertainty."