Consumer spending strong, but businesses wary

The Deloitte Consumer Spending Index jumped in October, rising to 4.02 from 2.54 the previous month. Other reports also indicate that shoppers are ready spend, but according to The Associated Press, retailers may not be ready for increased business, as they are still uncertain about the economy and the impending fiscal cliff.

Consumers confident
The Deloitte Index, which tracks tax burden, initial unemployment claims, real wages and housing prices, jumped in October, implying customers are prepared to spend money on retail goods this holiday season. With employment numbers indicating hiring is on the rise, more people may have money to spend on products this year.

"Rising consumer confidence should give retailers reason to celebrate during the holiday season, but the winds may shift in January, which should encourage retailers to make the most of this good news now," said Allison Paul, vice chairman at Deloitte and retail & distribution sector leader.

Retailers hesitant
However, not all businesses are as confident as many consumers. Bloomberg reported that merchant inventories have been moving sluggishly following Hurricane Sandy, indicating some businesses on the East Coast may still be having trouble with retail logistics in the wake of the storm. Many merchants lost inventory due to storm damage or had shipments go missing when the harbor, airports and roads were closed.

However, the hurricane isn't the only reason behind the low inventories. Many businesses are fearful of the fiscal cliff, a combination of tax hikes and spending cuts that will kick in automatically if the federal government fails to reach a budget deal by the end of the year. If this event occurs, retailers may be hesitant to keep large inventories because of fears the products may not sell. Bloomberg reported that businesses had enough stock to keep up with consumer demand for 1.28 months in September, down from August's number of 1.29.

As a result of keeping inventories low, it is possible that some retailers could end up with product shortages during a busy holiday shopping season. This late in the year, procuring more products from overseas could prove to be difficult for companies that lack warehouses or storage centers in the United States.

As the holiday season continues, it remains to be seen whether retailers will have enough product on hand to satisfy consumer demand, or whether the retail supply chain will be strained as merchants place last minute orders to boost their inventory in response to excessive customer requests.