• by Jack Loechner , Staff Writer @mp_research, April 17, 2003

Although not research metrics as we know it, a summary of likely consumer reactions to post-war buying, as reported by Thomas J. Ryan, business writer for MultexInvestor, can be useful in positioning the message and selecting the medium. In the last week many retailers have blamed the distractions of war for missed sales goals, but Mr. Ryan sees consumer confidence and economic recovery as the catalyst to improve sales. Ryan writes:

Taking 1990-91 as a precedent, one can't be blamed for thinking that the end of the Iraq war lead to a rebound in retail stocks? Iraq's invasion of Kuwait in August 1990 sent broadline retail stocks spiraling, but after the Gulf War ended in 1991 they rebounded quickly, outperforming the S&P 500.

Twelve years later, he says, things are different. While the end of the war may spark sales-after all, the "CNN effect" has undoubtedly kept many shoppers out of the stores-underlying economic fundamentals remain weaker than in 1991, and most analysts aren't predicting a sustained recovery in consumer spending anytime soon.

One key difference between 1991 and 2003 is that interest rates were much higher then. Prior to the Gulf War, rates stood at 8 percent, compared with today's 40-year low of 1.25 percent. Bernstein Research's Emme Kozloff notes that a series of interest-rate cuts after the 1991 Gulf War jump-started the economy; now, she says, "the current cutting cycle has essentially ended, leaving no dry powder for additional stimulation or dramatic relative-valuation improvement."

Kozloff says another difference between then and now is the arrival of terrorism on American soil, so that although consumer confidence has been trending somewhat as it did during the 1991 Gulf War, it is "difficult to predict the trend and consequent spending behavior after the current war ends."

In addition, the current wave of home-mortgage refinancing, which has freed up money for consumers to spend on discretionary goods, will not likely continue at the current pace. Finally, the cost of the current war is likely to be much greater than the one before.

Though Ryan posits that current discretionary spending limits early retail growth, most analysts say that what's needed to get consumers buying again is greater job creation and wage growth, and a few are optimistic that better economic times and easier comparisons will lead to strong results for retail in the second half of the year. Prudential's Wayne Hood believes pent-up demand will lead to a strong consumer-spending recovery in the second half of 2002.

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