Retail sales may rise but shoppers still cautious


The holiday shopping season is make-it or break-it time for retailers. However, there is an economic chill in the air caused by strong headwinds and consumers are facing a tough decision -- to spend or not to spend.

"I think I'll save my money and spend less this year," says San Jose resident Aida Woldu.

The problem is the very factors that used to give consumers confidence to spend, remain weak. Their homes are no longer a piggy bank, allowing them to borrow equity. Almost 35 percent of the homeowners in California are underwater. They owe more than the house is worth today. That's 2.4 million households.

However, there is new evidence out that the decline in home prices is starting to improve. The closely watched Case Shiller Home Price Index shows values are down about 9 percent from a year ago. They were down over 30 percent at the start of the year. On the other hand, the jobless rate keeps climbing and economists agree we haven't reached the peak. So people are worried about going into debt.

"I've been on unemployment for a year already because my company got sold," says San Jose resident Corine Garcia.

That uncertainty is raising anxiety. Twenty-two percent of those polled by Associated Press -- that's more than one in five people -- say debt has them greatly or quite a bit under stress.

Nevertheless, retailers are pulling out all the stops to entice holiday spending. Stores already have launched pre-Thanksgiving sales, with some offering a staggering 30 to 40 percent off.

"Retailers are trying to entice people to shop early so they can make their numbers, go through their inventory and the consumers wins," says PayPal senior director Amanda Pires.

Retailers know if there's any money to be made, they want to get it from consumers early on. "I think if the retailers can get their money from the consumers earlier in the season, they're better off," says Santa Clara University professor Kirthi Kalyanam, Ph.D.

And consumers will have first pick of merchandise at low prices that used to be slashed late in the season.

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