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is a necessity," he said. "Those types of retail stores are holding up, but the rest of retail is languishing."
Rao says consumers, for the most part, are concentrating their spending on the necessities and letting the discretionary
slide. He traces the spending pattern's initial shift back to late last summer.
"Gasoline prices easily started affecting overall (retail sales) numbers by August of last year (2007)," said Rao. "We
were beginning to see some discrepancy then. By September 2007, things started to break down the way that they have now -
where gasoline is eating up more of consumers' wallets. With food prices, the price increases have been a little more
gradual."
Rao predicts the year-to-year growth of gasoline prices to slow after this summer ends, but he doesn't see food prices
stabilizing for some time yet.
"In general, during a slow economy, prices are slower as well," Rao said. "But gasoline and food are clearly the two
exceptions."
Frank Spreng, professor of economics and director of the MBA program at McKendree University, says recent consumer credit
report data from the Federal Reserve about increasing amount of consumer debt makes perfect sense during a climate when the
prices of staples such as gas and food continue to skyrocket.
"The March '08 Consumer Credit Report from the Federal Reserve shows the amount of revolving debt (credit card debt is
revolving) growing at almost 8 percent a year, which is higher than any timeframe since 2003," said Spreng. "The report says
consumer credit card debt is higher that it's ever been and growing at a reasonable rate."
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The whole credit card debt issue, says Spreng, is in many ways parallel to the subprime mortgage business. "I don't think
there's any doubt in recent years that credit card companies have expanded way beyond the traditional notion of who owns
credit cards," he said. "Now lower-income people, college students and maybe even high school students and other groups of
people you don't think of as in the mainstream of the economy are now credit card holders. And if a student has a credit
card, it will probably be at a pretty high rate if he doesn't have a credit history."
As soon as a homeowner has the initial indebtedness problem with the mortgage, Spreng says it's not long before
associated crises involving other debts arise.
"People were using the equity in their homes to boost consumer spending," he said. "The question is: Where are they going
to go to continue their level of consumer spending? If they can no longer go to the home equity loans in this tightened
market, the natural course is to turn to credit cards...it's the only place many of them have to go to make up that gap."
According to a national survey by market research firm PSI Global, Generation Xers - people aged 22 to 33 - account for
only 18 percent of America's credit card holders, but they charge up 25 percent worth of outstanding credit card debt. Some
60 percent of Gen Xers carry balances from month to month, PSI data reports, compared with an industry average of 46
percent. And the typical unpaid balance in a Gen X household is $3,128 per month, which is 28 percent higher than the
current industry average of $2,438.
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