When demand releases, it may be shop 'til you drop time

— -- While the recession has put the brakes on recreational spending, it has also caused many consumers to put off major purchases — such as a new car or washing machine — until the economy rebounds.

Those postponed purchases represent a phenomenon known as "pent-up demand," which is often the key to emerging from an economic downturn.

The bad news is there's considerable disagreement among economists about how much pent-up demand exists right now and what it will take to unleash it. Economists say the longer people pull back, the more likely it is they'll spend even more when their confidence in the economy returns.

May's retail sales, out Thursday, were worse than expected, and consumer spending is expected to remain weak this quarter and next, IHS Global Insight chief economist Brian Bethune says. And that's despite the fact that consumer confidence is growing — up strongly last month, according to the Conference Board's consumer confidence index.

There are positive signs. Shoppers are less willing to "limit their spending, seek deals or trade down to lower-priced brands and retailers" because of the recession, finds a survey by market research firm Retail Forward.

But analysts are divided about when the shopping fever will hit.

Not until next year, says consumer insights firm BIGresearch. Executive vice president of strategy Phil Rist says there isn't much pent-up demand, because most people can't envision having the money to spend anytime soon, and tax rebates and refunds often go to pay down debt.

"Money needs to move, to circulate, in order for a consumer economy to work," Rist says. Only 31% of consumers in a recent poll by BIGresearch admitted to a pent-up desire to shop. And 47% didn't expect to shop big until next year. Still, retail analyst Marshal Cohen of market research firm NPD Group believes the spending orgy of the last several years — and subsequent pullback — has made a big rebound inevitable.

"Pent-up demand is reaching a fever pitch, because so much growth occurred uninterrupted for so long," Cohen says.

The fridge factor

Plummeting spending on what are known as "consumer durables" — cars, refrigerators and televisions — worsened the economic downturn.

"As people halt purchases of things, you start getting layoffs in these industries, and all the related industries, and you start getting a higher level of unemployment," says Donald Norman, an economist for the Manufacturers Alliance.

"But just the reverse will happen once they (sales) turn around," he says. "You set in motion a positive feedback effect when people see that the world is not going to end tomorrow, that things are going to be better. Then they'll start to purchase."

Some evidence of the possible turnaround became apparent when the Commerce Department announced orders for durable goods rose 1.9% in April, more than four times the increase that had been expected. New manufacturing orders were up in two of the last three months after six monthly decreases.

With each passing month, Norman says, "We're seeing a rise in the average age of the vehicle fleet." The average age of appliances is rising, too, and appliances are relatively expensive to repair, he adds.

In every downturn since World War II, Norman says, "The sharper the recession, the sharper the recovery. In virtually every case, forecasters underestimated how strong it would be. I think it was a product of pent-up demand."

David Wyss, chief economist at Standard & Poor's, says there's no question that consumers have been putting off purchases of big-ticket items. But he doesn't expect to see the kind of spending bender that marked the end of the last recession in 2002.

"I expect them, if anything, to use funds to pay down debt or rebuild 401(k) balances," he says.

While there will eventually be a bounce-back, "it's not going to be the kind of spending spree we've seen out of previous recessions," Wyss predicts. Consumers have lost a significant amount of wealth, he says, and credit has tightened, making it difficult to borrow for major purchases.

Still, big discounts on big-ticket items will help lure worried consumers back into stores, Wyss says. "Americans are trying to acquire this new virtue of saving money, but it's awfully easy to seduce the average American," he says. "Giving them 20% off will work."

Brady Kimball, 33, of Los Angeles, usually falls for deep discounts, but she's turned into the type of consumer Rist is referring to. She's dying to decorate her new apartment, but her company has withheld raises and bonuses, so she's resisted all urges. Even though she's a savvy — and prolific — bargain shopper, she has had to "alter some of my behaviors."

"I am waiting until a windfall of cash is in hand before I do any serious shopping," says Kimball, a special events producer.

Ready to run

NPD Group's Cohen expects the back-to-school season will be the first clear evidence pent-up demand is being released, "because you can't go back yet again with a 2-year-old backpack. It's not going to cut it."

As people realize how good it feels to shake some of that "frugal fatigue," the holiday season should get a boost that extends into spring, which Cohen predicts will see the biggest retail sales increase.

Marketing services company Axciom, which has been studying which consumers will start spending first, sees hope in data showing that the percentage of people focusing on "needs" while shopping was down from 59.5% in April to 56.9% in May. And fewer people described themselves as "practical" and "realistic" when spending: 47.4% in May, compared with 51.6% in April.

Some evidence of bounce-back is showing up in home improvement, where Cohen says, "Consumers are already saying, 'If I can't sell my house, at least I need to make it better.' "

One way is with new appliances that are becoming as much of the kitchen decor as the cabinets and countertops.

Norman says there are purchasers who are new homeowners, those who have to replace old models and those who are trading up to better versions. With a dismal housing market, appliance makers and retailers know they need to attract more of the latter types of shoppers, and are offering more stylish designs and colors, lower-price options and many that use far less energy.

Still, gone are the days when people would turn to their home-equity lines to upgrade their stoves and refrigerators. Along with credit, shoppers need confidence the economy will come back.

"Our fingers are crossed," says Sears Home Appliances President Doug Moore. "We'll see whether customers jump back in."