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Tightening our belts

The Baltimore Sun

Consumers are shopping less, driving less, eating out less and taking fewer trips. With the economy in a tailspin, there's talk of people rediscovering the art of coupon clipping.

The economic turmoil of the past month, only adding to previous housing and credit woes, has consumers scared and pulling back in a big way.

Consumer confidence hit lows earlier this year, and it's expected to go even lower. Unemployment is rising. The presidential election adds its own measure of uncertainty.

"Conditions are very weak and appear to be weakening even further, and confidence reflects that," said Lynn Franco, director of the Consumer Research Center of the Conference Board in New York.

"You've had ... not only tremendous declines in confidence but in people's ability to spend, with stagnant wage growth, diminishing purchasing power," Franco said. "You have home prices and asset prices declining, and tight credit conditions. So all of that was already curtailing consumers' spending. Consumers have retrenched."

In the short term, consumers are changing habits: where they shop, how often they drive or how they spend leisure time. That means a pullback in big-ticket items and on travel- and entertainment-related expenses, she said.

"It's a tough selling environment for hotels, airlines and rental car companies," said Henry Harteveldt, a vice president and airline and travel analyst for Forrester Research Inc. in San Francisco.

Some expect the trends to continue well into next year or longer. And some of the new consumer habits could be more than temporary.

"Behavior is changing dramatically," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm in New York. "We're in a different era."

Here are some of the consumer outlooks and habits that have changed, as well as some areas where analysts expect modifications:

Less-confident consumers :

Consumer confidence, falling since August 2007, hit a 16-year low in May before sinking to its fifth-lowest reading ever in July, according to the Conference Board's Consumer Confidence Index. By September, the latest monthly figures available, the index had posted a slight gain, thanks to an improvement in short-term expectations.

But a measure of how consumers feel about current conditions eroded even further. And the business group said the results of its survey, based on a sample of 5,000 U.S. households, did not capture the financial turmoil that erupted in the second half of September.

In the past, Franco said, shocks such as the 1987 stock market crash have hurt confidence only temporarily, on average from two to four months. But there could be a longer-lasting effect, she warned, if the downturn results in significant job losses.

"Much has occurred and intensified over the last several weeks," Franco said. "It looks like things will get worse rather than better."

Cutting back on driving:

Marylanders drove 261 million fewer miles in August than they did in August 2007, a 4.9 percent decrease, the U.S. Department of Transportation said this month. Americans drove 15 billion fewer miles in August, a 5.6 percent drop from August 2007.

August marked the 10th consecutive month that motorists have been driving less.

"This trend is proof that the high cost of gas and concerns about the economy can modify behavior in ways that none of us could have predicted a year ago," said Christine Sarames Delise, a spokeswoman for AAA Mid-Atlantic. "However, now that the price of gas has come down from its $4-a-gallon record high in July, it will be interesting to see if the trend is reversed."

Shopping less:

In mid-October, a 700-point plunge of the Dow Jones industrial average was tied to a grim report of retail sales slumping 1.2 percent in September. That was worse than the 0.7 percent drop economists had expected and raised alarms that a recession might be looming or has arrived.

Consumers have curtailed their shopping.

They're trading down to less-expensive stores. They're buying coffee at Dunkin Donuts instead of Starbucks, eating out at McDonald's instead of Bennigan's, and avoiding department and specialty stores in favor of Family Dollar and Wal-Mart, Davidowitz said. "The consumer is going through one of the most massive shifts in spending I've ever seen," Davidowitz said. "The consumer has spent more than they've made for 10 years. They have made that money up through using their homes as a piggy bank. Now, the consumer is in survival mode."

Cutting back on travel, entertainment, dining out:

Airlines are losing money, cutting back flights, dropping cities and removing planes from their fleets. Fuel prices finally have started to drop, but the economic slowdown has cut into people's ability to travel. Bookings and demand began to fall off after Labor Day.

A Forrester survey of about 3,200 leisure travelers showed that about 36 percent cut their travel spending over the summer because of gas prices and early stages of the consumer credit problem.

The good news, Harteveldt of Forrester says, is that with air travel down, "there are some good deals for tourists as well as business people going to some markets."

As for restaurants, operators have seen drops in same-store sales in eight of the past 10 months, according to a tracking survey by the National Restaurant Association.

"The national restaurant industry is currently in the midst of its most challenging environment since the early 1980s as consumers are being hit by ... the sluggish economy, elevated food and energy prices, and declining wealth," said Bruce Grindy, chief economist for the restaurant association.

Coupon use :

Consumers traditionally look to coupons during turbulent economic times, analysts say. And while they aren't using coupons as much as they did 15 years ago, marketing experts say the decline is slowing along with the economy.

Last year, for the first time in more than a decade, and amid a softening economy, shoppers redeemed the same number of coupons as the previous year: 2.6 billion, CMS said. As of midyear, it looked as if coupon usage this year will again stay flat, said Matthew Tilley, director of marketing for CMS.

That's a departure from past years, when coupon use steadily dropped from its 1992 peak of 8 billion redemptions.

"Obviously, the news has gotten even worse in the last three or four weeks, and this is very much speculative, but ... the current economic crisis is not going to ease up anytime soon, and we would expect to report increased usage," Tilley said.

Tilley added that coupon usage tends to rise along with unemployment.

by the numbers

59.8

Consumer Confidence Index for September, down from 87.9 in January

5.01

billion

Miles driven in Maryland in August; down 4.9 percent

1.2

Percentage decrease in retail sales in September

448.5 million

Scheduled passengers on U.S. airlines, January through July; down 0.8 percent

48

Percentage of restaurant operators with same-store sales declines in August

4.6

Percentage of Maryland unemployed workers in September; up from 3.5 percent in January

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