02/13/2013 01:19 pm ET

Shoppers Cutting Back In Uncertain Economy, A Move That Could Only Make The Economy Worse

During his State of the Union address, President Barack Obama painted a picture of a nation finally on the mend from the anxiety-provoking economic woes of recent years and moving back toward vigorous growth. But outside a Target on a recent evening, that message had yet to reach many shoppers, who still spoke in terms of scrimping to hang onto their precious dollars.

“Because of the economy I am cutting back,” said Malcolm Charles, who was shopping for groceries and other items at a Target in Brooklyn on Sunday.

That urge to hold back -- an apparent long-term legacy of the Great Recession -- hurts more than just the retail giants suffering from sluggish sales. It’s an indication of weakness in the broader economy that's simply underscored by minimal gains in retail sales, according to data released by the Commerce Department Wednesday.

Given that consumer spending accounts for about 70 percent of overall economic activity in the U.S., a reluctance to shop translates into a reluctance to hire among employers, who are hesitant to invest without signs that their sales will grow. In short, experts say, the U.S. economy appears locked in a vicious cycle. Millions of Americans remain out of work, or worried about their bills and whether they can hang onto their homes; they are either unable or unwilling to spend. That in turn prevents resumed hiring, which keeps the cycle going.

“This can be this sort of catch-22 kind of situation,” Chris Christopher, principal senior economist at IHS Global Insight, told The Huffington Post. “If consumers hold back in a substantial way, the economy suffers, and if firms see that consumers aren’t spending that much, they might not hire at the rate they’re hiring at now, which is kind of anemic.”

Rebecca Walser is one of those cautious shoppers. While looking for suits in a Manhattan Macy’s Monday afternoon, Walser described her spending as “a little bit more restrictive,” in recent months. She is in the midst of a job hunt, and said she cut back on going out to dinner and other forms of entertainment in part because she feels that due to all the talk of gun control and immigration reform, lawmakers aren’t focused enough on creating jobs.

“I don’t think jobs are his priority,” Wasler said of Obama.

There are plenty more immediate reasons why shoppers aren't spending. Their paychecks are suddenly looking a little bit smaller, thanks to the recent payroll tax hike, which will cost the average worker about $700 per year. Gas prices have also spiked in recent weeks. To make matters worse, Americans are hesitant to shop when lawmakers continue to wrangle over fiscal policies that could result in even more tax boosts.

Marie Challinor, a New York City-based garment worker also shopping at Macy’s, said she’s felt the pinch of the uncertain economic climate both at work and in her personal spending habits. “It affects everything,” she said.

Challinor, 56, said she felt lucky that her employer didn’t specialize in winter wear, because concerns about the economy combined with an unseasonably warm winter are keeping shoppers from spending on coats. “People are putting money away for a rainy day,” she said.

As for her own shopping, Challinor said she’s cut back on “unnecessary” items like shoes and handbags, but as a single person, she still has enough disposable income to shop. “I live on a budget but I don’t deny myself either,” she said.

That balance is one that many Americans are striking these days, according to Marshal Cohen, the chief industry analyst at NPD Group, which provides research for the retail sector. Shoppers held back in December -- holiday sales were the weakest since 2008 -- but now some have “pent up demand” and are ready to spend, Cohen said. “The consumer has said, 'You can throw all these things at me, but I still have desires and I still have money in my pocket,'” he said.

As a result, some retail chains saw solid sales in January. Macy's sales jumped 11.7 percent as the department store was able to meet shoppers' demands by racing to get new items on shelves, according to Reuters. Target's same-store sales increased 3.1 percent last month, largely thanks to consumers coming to the store to look for discounts, according to Fox Business.

Some Americans, like Mark and Cindy Brown, are just now feeling better about the economy. Although the Denver couple hasn’t been shopping much for clothes, they recently bought a new car and boosted their travel spending. Mark, 56 and a software engineer, said he got a raise recently and his company is seeking more workers. He said he feels more comfortable than he did a few years ago when hiring at his company was flat.

"We are feeling pretty good," he said.



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