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Lowest Third of Consumers Hit Hard, But Retail Sales Solid: Analysts

Richard Hastings, senior retail analyst at Bernard Sands, told CNBC’s “Squawk Box” that the buying power of the bottom one-third of consumers is falling.

Analysts & Warning Signs

“The lower one-third [of consumers] is in stagflation,” Hastings said Monday. “Their buying power is diminishing. The last three years, they’ve had phase after phase of losing buying power. The Fed Funds rate goes up, prime rate goes up, their credit quality is not as good, [and] they have diminished buying power."

"Now, the credit markets are turning against them, they don’t have the ability to use debt leverage to overcome what they’re facing in inflation from gasoline and food.” 

However, Mark Vitner, senior economist at Wachovia, said retail sales will continue to grow -- but at a slower rate.

“Job and income growth has actually been pretty strong,” Vitner said. “When you look at retail sales, we no longer have the tailwind of rising housing prices."

"But," Vitner continued, "job and income growth are strong enough, and goods prices -- clothing, furniture, electronics, toys -- are all falling. So, purchasing power is holding up reasonably well. Core retail sales are up 4.8% annual rate over the last three months (and) better than 4% over the last year. I don’t see much of a problem – slower, but still strong enough.”

Vitner said many analysts don’t factor in falling prices.

“This has been especially true at the building materials and home supply stores, where lumber prices have come down so much over the last year,” he said. “That’s what’s giving us these low same-store figures: we’re getting falling prices in goods."

"Purchasing power has certainly taken a hit from higher gasoline prices, and we don’t have the windfall from rising home values, but there’s still enough job and income growth to give us some solid numbers,” Vitner predicted.