Combine that with stagnant employment and wages, as well as soaring gas prices – gas is up 50 cents a gallon in the past month alone – and consumers start to feel the pinch, says Edgar Dworsky, founder of ConsumerWorld.org, a consumer information service.
“Those who are living paycheck-to-paycheck, spending all they’ve got, those are the folks who are going to be hit the most,” Mr. Dworsky says.
Retailers are also bracing for the hit, says Mr. Housel.
“The big retailers like Wal-Mart are very good at reading customers' shopping habits and adjusting quickly,” he says. “You'll see stores adjusting inventory toward lower-price items and smaller-packaged goods.”
Case in point: McDonald’s is promoting its Dollar Menu, Burger King slashed its Whopper Jr. burger from $2 to $1.29, Tyson Foods is ordering more budget-friendly chicken and lower-priced cuts of meat, and Wal-Mart is stocking shelves with cheaper goods and smaller packages of bulk items, reports The Wall Street Journal.
“Any industry that focuses on low-income consumers starved for value will see the biggest hit – discount retail and dollar stores, for example,” adds Housel.
Already, Wal-Mart, the world’s largest retailer, had the worst start to a month in seven years and described February sales as “a total disaster,” according to internal company e-mails obtained by Bloomberg News.