SOURCE: BIGresearch

March 23, 2005 12:25 ET

Consumers One Step Ahead of Fed

"The rise in energy prices, however, has not notably fed through to core consumer prices." -- Federal Open Market Committee Official Statement, March 22, 2005

COLUMBUS, OH -- (MARKET WIRE) -- March 23, 2005 -- According to the latest BIGresearch survey, the Fed has nothing to worry about because consumers don't wait for The Fed to tighten. Consumers just look at gas prices and 30-year conventional mortgage rates. And that means more imports and deficits. That's Fed policy in a nutshell.

The latest BIGresearch data for March 2005 has rolled in, pulling consumer consumption and attitudes from 8,425 respondents. Sifting through the data clusters, two outstanding facts emerged:

1.  Consumers are getting into a "let's maybe spend less" mood.
    So, The Fed reads this and keeps the accommodative policy.
    If you thought The Fed would attack with higher rates primarily
    because of high gas prices, well fuggetaboudit. They are
    concerned about labor costs and wealth effect speculation, not
    marginal gas price effects.

2.  Consumers are certain about their cell phones. They are not
    certain about clothing and fashion.
Slightly less than half of all respondents say higher gas prices are having no major impact on their spending outlook. This solid position is no surprise. Despite higher bank-to-bank borrowing rates, and higher gas prices, the current monetary and credit system is relatively unaffected by the recent upward move in oil and gas prices.

"Domestic gas inflation leads to renewed efforts to maintain U.S. dollar-Yuan peg rate in order to prevent imported discretionary goods prices from rising. This makes today's gas inflation almost meaningless to domestic monetary policy. It does, however, help Fed officials' ghost writers find good material for speeches and encourages policy makers to focus on price stability which, in today's macroeconomic language equals imports and deficits," said analyst Richard Hastings of The RDH Company and a BIGresearch Associate.

"'No Major Impact' is a bigger worry to The Fed, since they are concerned consumers might continue to leverage their debts (ahem, mortgage debt) and low rates (global demand for U.S. long-term debt remains enormous) will continue to fuel residential debt speculation and more hedge fund leveraging," said Hastings.

"How have fluctuating gas prices impacted your spending?
 (Check all that apply)"
Delayed major purchase
 such as car, TV, furniture      14.4%
Reduced dining out               24.7%
Decreased vacation/travel        28.4%
Increased carpooling              4.6%
Spending less on groceries       14.6%
Spending less on clothing        21.0%
Other                             7.5%
No major impact                  48.7%

The sum of the % totals may be greater than 100% because
the respondents can select more than one answer.
Source: BIGresearch
My Old Car. Consumers continue to use higher gas prices, and allegedly inadequate mileage to justify more expenditures on new vehicles. Just when The Fed thinks consumers are going to take it easy on borrowing, they start saying they are going to borrow again long-term (maybe use some of those 72-month auto loans) in anticipation of much higher gas prices.

"So, if we need more auto sales to prevent GM from scaring the daylights out of the markets, then policy makers just need to push down on the gas pedal and make people think twice about owning what they haven't finished paying for," said Hastings.

"Which of the following motivated you to get a new vehicle?
 (Check all that apply)"
Financing deals/incentives were too good to pass up     14.3%
My lease was up                                          4.8%
My old car had high mileage                             35.2%
My old car was always in the repair shop                20.4%
I was tired of my old car; I wanted something new       22.0%
I wanted a vehicle with new "tech toys"
 (GPS, DVD, etc.)                                        6.2%
I wanted a vehicle with better gas mileage              19.2%
I wanted a vehicle with better safety features          14.6%
I like the style of the new models                      15.0%
My significant other wanted a new car                   11.9%
Needed another car for my family                        14.0%
My old car "died"                                       17.6%
Needed more room                                         9.0%
Other:                                                  17.0%

The sum of the % totals may be greater than 100% because
the respondents can select more than one answer.
Source: BIGresearch
About Richard Hastings

Richard Hastings is a nationally recognized authority on retailing and consumer spending. He is a frequent guest on CNBC and National Public Radio. His comments are also seen in all major business channels including The Wall Street Journal, Bloomberg, Reuters, and TheStreet.com. For more information, visit his website at www.spendingspending.com.

About BIGresearch

BIGresearch is a market intelligence firm providing analysis of consumer behavior in the areas of retail, politics and media. The syndicated Consumer Intentions and Actions Survey (CIA) monitors the pulse of more than 7,000 consumers each month to identify opportunities in a fragmented and changing marketplace.

BIGresearch's methodology provides the most accurate consumer information in the industry with a margin of error of +/- 1 percent. Complimentary findings are available at www.bigresearch.com.

To comment on this release visit the BIGresearch blog: http://whencustomerstalk.blogspot.com

Contact Information

  • Contact:
    Richard Hastings
    (704) 366-0405