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Jennifer Waters's Consumer Confidential
Jan. 19, 2011, 11:53 a.m. EST
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By Jennifer Waters, MarketWatch
CHICAGO (MarketWatch) "” Don't count on the consumer to bail out the economy just yet.
Consumers will continue to get caught up in gale-force winds that are cutting into their spending "” just as they're starting to feel some level of comfort about job security and financial health.
In response to rising tuition levels, a University of Colorado student pays tuition with single dollar bills. Video courtesy Fox News.
Though inflation is still very much under control, costs on a variety of everyday goods are rising. A $10 increase in cell-phone bills, a $1 increase in a fast-food meal, and a 30-cents-a-gallon hike in gasoline all tally up quickly for consumers who are living on tight budgets, paying off debt or trying to build a savings cushion.
"Nickels and dimes add up," said Standard & Poor's chief economist David Wyss, who calls this a "half-speed recovery."
"The money you spend filling up your car and the money you spend filling up your refrigerator is the money you can't spend on other things," he said. "This is one of the bigger headwinds that the economy is fighting against."
Consumer confidence, essential in powering spending, also is waning again. The Reuters/University of Michigan consumer sentiment index gave back 1.8 points this month to settle at 72.7, thanks to growing pessimism of economic conditions. Read more about consumer confidence in January.
"Consumers are not throwing caution to the wind since there are tremendous headwinds, such as a high and persistent unemployment rate, a poor housing market, tight credit conditions, and increasing energy costs," said Chris Christopher, senior principal economist of IHS Global Insight.
As a result, the recovery that's in motion now is looking more like a three-legged race than a steady sprint.
Consider what the consumer is facing.
Food prices are on the rise and will pinch everyone, no matter where they eat. Thanks to rising commodities costs, prices at the grocery store and at restaurants are moving higher. The cost of food eaten at home rose 1.5% last year, according to the latest Consumer Price Index, while food away from home trekked 1.7% higher. Major food producers like Sara Lee Corp., Kraft Foods, General Mills and ConAgra Foods are dropping discounts and upping food prices by 6% to 10% at the stores.
"These are essentials that people need to live on and the price increases are just basic taxes," said Stephen Leeb, author and chief economist of the Leeb Group.
Some 60% of U.S. restaurant operators said they will raise menu prices this year, compared with only 5% who will cut prices and 35% who will keep them flat, according to a recent survey by Nation's Restaurant News, an industry magazine.
Higher commodity price are the No. 1 culprit, but respondents noted the lofty unemployment rate "” at 9.4% in December "” and stalled consumer spending as well.
In Starbucks Corp.'s dynamic world, the future lies in buying coffee by swiping an iPhone or another smartphone, writes Jon Friedman.
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