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Demand dips for big-ticket consumer items

Saturday, August 26, 2006

Mortgage rates, fuel costs and a cooling housing market play into the decline.

Lee Slinkard of Cape Girardeau wandered the aisles of Sears Grand Friday afternoon, eyeing new refrigerators and high-priced dishwashers.

But she wasn't buying.

"I haven't bought an appliance in two years," she said. "I have to watch my budget. I live on a fixed income. I'd like to convince my landlord to buy me a new fridge or stove, though."

Slinkard must not be in the minority. Orders to U.S. factories for big-ticket manufactured goods fell 2.4 percent in July as demand for aircraft and automobiles weakened.

The Commerce Department reported Thursday that orders for durable goods fell $5.3 billion last month. The decline, which followed two straight monthly increases, was a poorer showing than analysts expected.

Much of the weakness came from a 9.6 percent drop in demand for transportation equipment, which included a 10 percent decline for commercial aircraft and parts and a 7 percent fall in orders for motor vehicles and parts.

For July, orders for durable goods -- items expected to last longer than three years -- totaled $212 billion, a decline of $5.3 billion from the June level.

But part of the reason for the slide can also be attributed to the fact that consumers have become cautious about making such big-ticket purchases as mortgage rates have gone up and uncertainty has risen over whether the economy and job creation will keep slowing, analysts said.

So it would seem that Americans are waiting to buy big-ticket items and cutting back on frills. Homeowners are shelving plans to remodel kitchens and families are dining out less and tightening their budgets.

Also the housing market has cooled off significantly, said Dr. Bruce Domazlicky, director of Southeast Missouri State University's Center for Economic Research.

"People buy new appliances and furniture when they buy new homes," he said. "Obviously, if they're not buying new homes, they're not going to be buying those things as much."

Higher fuel prices also mean that people have less money to spend on those things, he said. The national average on gasoline is about $3 a gallon, or about 30 percent higher than it was a year ago. In June, the Federal Reserve boosted interest rates a quarter-point to 5.25 percent, the highest since January 2001, in an effort to curb inflation.

Many retailers are feeling the pinch. Wal-Mart Stores Inc. this week posted lower quarterly earnings for the first time in nearly a decade. Wal-Mart said it earned $2.08 billion, down from $2.81 billion in the the same period last year.

Lowe's Cos. on Monday reported that second-quarter profit rose 11.4 percent, but the home-improvement retailer lowered its sales and earnings outlook for the second half of the year. U.S. auto sales slid 17 percent in July as Americans seemed to shun trucks and opted for more fuel-efficient cars.

Nationally, Sears stores saw store sales decline 6.3 percent and Kmart declined 0.6 percent.

But at the Sears Grand in Cape Girardeau, operations manager Ben Cooper said they're seeing an increase in appliances sold. Appliances, including washing machines, dryers, refrigerators, dishwashers, air conditioners, water heaters and dehumidifiers, were up 48 percent.

But Cooper acknowledged that number may be misleading. Since Sears Grand is a new store, they don't compare the numbers to previous years. He said they compare the number to what the new store was projected to do.

And some customers at Sears said they couldn't worry about the economy. They simply needed the items.

For example, Teresa Campbell of Cape Girardeau said she needed a new dishwasher to start a day care.

"It's something I've got to have," she said. "The economy is not a factor in this instance. In spite of the economy, you still have to do what you have to do."

Ron Wooldridge of Chaffee, Mo., agreed. He was shopping with his mother for a new refrigerator.

"Ours is going kaput," he said. "It's more of a necessity. When you need a refrigerator, you don't take the economy into mind."

smoyers@semissourian.com

335-6611, extension 137


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