Modest improvement in retail spending forecasted for January

Overall retail spending will improve modestly in January, according to Retail Forward’s Future Spending Index. The index increased to 99.7 from 97.3 in December, suggesting that consumers should continue to open their pocketbooks in the weeks ahead. However, the index is below last January’s level, suggesting that growth will be somewhat weaker than the strong pace logged at the start of last year.

“The positive outlook for the first month of the New Year is the result of resurgent spending plans in the ‘Middle Market’ income segment, which had been showing some restraint during the holiday months,” said Steve Spiwak, an economist with Retail Forward. “Better incomes, investments, and home buying among these households, which account for nearly half of total spending, have triggered the expected improvement in spending for January.”

The future spending index for Middle Market households jumped higher this month, offsetting declines in the “Down” and “Up Market” income segments, according to the survey.

The index for Middle Market households (defined as having incomes between $22,500 and $75,000) rose from 93.3 in December to 102.1 this month. Better assessments of jobs and incomes, debt burdens, and investment worth compared with a year ago powered the index higher. An uptick in home buying contributed to January’s rise in spending intentions for this cohort.

The index for Up Market households (incomes greater than $75,000) slipped to 95.9 in January from 97.3 last month. Greater concern about debt loads has dampened near-term spending plans in this segment, offsetting stronger job security and home buying. A dip in refinancing activity, a key driver of consumer spending in recent years, also is weighing on Up Market spending plans.

Down Market households (incomes less than $22,500) are starting the year with more pessimistic views of job security and credit card balances, causing the index for this segment to decrease to 103 in January from 109.5 last month. An improvement in the pace of home buying cushioned the decline.

The Retail Forward ShopperScape survey is conducted each month with a sample of 4,000 U.S. primary household shoppers. The monthly survey is conducted online among a nationally representative sample of households. January’s survey was conducted during the last week of December 2005.

Columbus, Ohio-based Retail Forward, Inc. (www.retailforward.com) is a global management consulting and market research firm specializing in retail intelligence and strategies.