Shaky economy has worried consumers cutting back

Andrew J. Manuse/Daily News staff

Whatever the state of the economy, one thing is clear: consumers are thinking twice before opening their wallets.

"Even though we're making the same amount of money, everything seems to cost so much more," said Michelle Walker of Natick while grocery shopping last week. "I like to buy organic stuff usually, but I'm being awful careful about what I buy because it costs so much more."

Walker said she's cutting out the family's annual February vacation because of of travel costs.

"Wages don't seem to be keeping up with inflation," she added.

Roche Brothers' vice president of sales and marketing Paul McGillvray said any commodity-related product has seen "pretty significant inflation" this year. Demand for ethanol has affected the price of corn, which is also used as animal feed and as sweetener in soft drinks. Wheat, dairy - it's all gone up. The cost for transportation doesn't help either, he said.

"The bottom line is it affects the consumer and there's no question we've seen higher prices," McGillvray said. "It's a very competitive business, so we're very cognizant of our pricing and how it affects customers."

Even with price increases, the supermarket hasn't seen any "significant change" in customer purchasing, he said.

Stop & Shop spokesman Robert Keane said gasoline, transportation and the weather can influence the cost of products.

"In spite of these outside influences, Stop & Shop constantly looks at ways to be more efficient to offer our customers the best value possible," he said.

The Natick Outdoor Store has had a stellar year due to the cold weather, owner Henry Kanner said.

"People don't want to be cold and they want to be dry," Kanner said. "We're still selling boots, long underwear and hot hands."

Pond skating and ice fishing have picking up, which has generated business, too, he said.

In general, Massachusetts retailers reported a mixed bag after the recent holiday shopping season, according to Jon Hurst, president of the Retailers Association of Massachusetts.

While some retailers' sales were up 2 percent to 3 percent, many others reported declines in the 10 percent to 15 percent range, he said.

"We're in for a tough retail stretch here," Hurst said. "There are a lot of similarities to 1991 with what's happening in the real estate market place. It is so much of what drives consumer sentiment and how positive they feel about their short and long term, because for most people, their number one asset is their home."

The housing market is certainly the most often cited cause of economic conditions these days as is the mortgage crisis that followed it, with bad loans followed by a slew of foreclosures and dropping housing prices, according to Alan Clayton-Matthews, a University of Massachusetts economist. A third factor is a drop in consumer spending, he said.

"There's a good chance we are in a recession," Clayton-Matthews said. "Employment fell at an annual rate of half a percentage point."

To officially recognize conditions as a recession, however, there has to be a six-month contraction of economic activity and employment.

However, Clayton-Matthews said the state could be protected somewhat from a national recession by its heavy information technology and science-based industries that produce products for world consumption. The state doesn't invest much in building new homes, automobiles or similar products that are hit hard in a recession.

During the last recession in 2001, investors took the biggest hit from collapsing technology stock prices. This time, consumers may bear the brunt of the pain as rising inflation from energy prices and other factors boosts the daily living cost uncomfortably.

Framingham State College economist Maureen Dunne said the state is still recovering from the 2001 recession. Massachusetts employment peaked at 3.3 million jobs in 2001, fell to 3.1 million in 2004, then rose to 3.2 million in 2006, the latest data available. The state's gross domestic product, a measure of output, hadn't shown declines as of the third quarter, but all eyes are watching for fourth quarter results, she said.

Nationwide, "we have a troubled auto industry and an imploding housing industry, which hits the middle class and working class hard," Dunne said. "Not only are people losing jobs, but they are losing their homes. There are multiple problems with the economy at this time, and resolving one might not help the other."

Dunne said now would be a good time for people to "sit down and look at their finances."

"The question should be, am I saving?," she said. "For a lot of people, the answer is 'no.' You shouldn't have to borrow for a minor emergency."

In addition, people in danger of missing mortgage payments should seek help immediately, before it's too late, she said.

Natick real estate agent Andy Luke of Re/Max Home Finders said the housing decline has thinned out his industry, with colleagues and related mortgage consultants leaving the business.

"I'm enjoying the shakeout in a way, because those agents who shouldn't have been in the business are leaving," Luke said. "I've been fortunate that my referral base of clients and past clients has been steady, but I do see everywhere I turn, from friends in high tech getting laid off to friends in small business having lower volume.

"When people get scared, they stop spending, which means that anyone who sells stuff is making less money," he added.

People who could have sold their homes for $500,000 are now competing with bank-owned properties down the street that are selling for $480,000. That's what's driving price declines for home sellers, he said.

Ken Soderholm, a Natick resident who owns Soderholm Custom Builders Inc. said he and his son wonder how much of the economic problems are a matter of perception.

"We've been busy until now," Soderholm said. "I am seeing a decrease in the amount of proposals coming our way, the number of jobs to bid on and I'm seeing it become a little more competitive in the bidding."

People are concerned about the economy and the value of their homes, he said.

"Before, a lot of people felt like they could do an addition and spend the money because it would be worth at least that much or even more when it's done," Soderholm said. "Now, it might not be worth as much of the cost.... People are getting a little more cautious."

But Soderholm said the local housing stock has aged and the way people live in their homes is different than it was when the homes were built.

"When people go home, they really want to live at home. They want more space, a family room and an entertainment room," he said. "So people will always be adding on or tearing down or rebuilding."

Ted Welte, president of the MetroWest Chamber of Commerce said people are now more cautious about what they anticipate during the year.

"Our economy is very large and it takes a lot to take the steam out of it," Welte said. "Some parts like the housing market are having a serious challenge right now, those things seem to be shaking out with major defaults on mortgages. In the long run, bursting the bubble to bring the housing prices down was needed."

Welte said Congress and the president have made a decision to stimulate the economy and the Federal Reserve's rate reductions should help drive more spending, too.

Robert Lavelle, senior vice president of Middlesex Savings Bank, said the federal government and Federal Reserve will do everything they can to help the nation avoid a recession.

"The main intent behind the fiscal package is that it would be done as quickly as possible and would be short lived so not to impact the budget deficit down the line," Lavelle said.

Lower interest rates, he said, would make money cheaper to borrow, helping homeowners who may have overextended themselves.

Many economists are dubious that the short-term cash infusion will boost the economy in the long run, particularly because the federal government does not have the money to devote to the stimulus package it is about to pass.

Outside of Shoppers World in Framingham last week, William Burns, 37, of Stow said everyone he knows is watching their budgets more, particularly with $500 heating oil bills coming in every month.

"A lot of people aren't seeing the wages to match the increase in food prices, oil prices and gas prices," Burns said. "The biggest thing we've done is to reduce debt. That's where a lot of folks are getting into trouble."

Burns said his family has turned to bargain hunting and cutting back on buying to make sure the money is there. As he was speaking, he was heading into Petsmart with $10 worth of coupons to buy food for the family pets.

"We're doing a lot of coupon shopping these days," he said.

(Associated Press material was used in this report. Andrew J. Manuse can be reached at or 508-626-3964.)