Here's a sign of how shaky the economy has become: Wal-Mart says its shoppers are redeeming their holiday gift cards for basic items - pasta sauce, diapers, laundry detergent - instead of iPods or DVDs.
Merchants had hoped shoppers armed with gift cards would provide a lift after a dismal holiday season - partly because shoppers tend to spend even more than the value of the card. But that didn't seem to happen last month.
Yesterday, the nation's retailers turned in their worst January in almost four decades as high gas and food prices, a slumping housing market, tighter credit, and a tougher job market pushed consumers to the edge.
Sales at 43 retailers surveyed by the UBS-International Council of Shopping Centers rose just 0.5 percent in January, below the original 1.5 percent forecast.
The results - based on sales at stores open at least a year - followed an anemic 0.7 percent pace in December and were below the 2.1 percent gain for all of last year.
Jill Panell, a 26-year-old homemaker from Sterling Heights, Mich., was using a $20 Wal-Mart gift card yesterday to stock up on groceries and pet supplies.
"Gift cards are being used as a secondary way to save," said Burt P. Flickinger III, managing director of the New York-based retail consulting firm Strategic Resource Group.
The assessment by Wal-Mart Stores Inc., the world's largest retailer, that gift card redemptions were below expectations and people were buying only necessities shook up industry observers. Retailers record gift-card revenue only as cards are redeemed.
"It shows you the level of worry. Even with free money in your hand, [consumers] aren't willing to spend on anything more than necessities," said Michael P. Niemira, economist at International Council of Shopping Centers.
Niemira said January's retail sales performance was the weakest for that month since at least 1970, when comparable records started.
Shoppers appear to be looking at gift cards not as "free money" but rather as their "own personal cash," said C. Britt Beemer, chairman of America's Research Group, citing his recent surveys with consumers. They are also holding on to the gift cards longer this year than last year, he said; 15 percent of the 1,000 consumers his group interviewed said they redeemed their gift cards in December, compared with 33 percent who did so last year.
The retail sales results extended a streak of news that showed more signs of consumer strain. Consumer spending accounts for two-thirds of the nation's economic activity.
The Labor Department reported last Friday that US employers sliced payrolls by 17,000 in January, the first decline in more than four years. The department said yesterday that jobless claims fell last week by 22,000, but that was smaller than expected.
And if the job market continues to deteriorate, "all bets are off," said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott.