Image: Jose Delgado
Justin Sullivan  /  Getty Images file
Jose Delgado shops for shoes at a discount clothing store in San Francisco.
updated 10/7/2009 5:18:27 PM ET 2009-10-07T21:18:27

People aren't just shopping more at Family Dollar. They're buying the cheapest stuff on its racks. Even Pizza Hut's sales are slowing as consumers seek fast-food bargains.

Even as U.S. consumers stay home and cut back, however, consumers in other countries are helping profits at some of the companies reporting their earnings this week, including Costco Wholesale Corp. and Yum Brands Inc.

Analysts are seeking clues about the predicted economic rebound after companies beat earnings forecasts for the second quarter by slashing costs. For the third quarter, investors want to see revenue growth that will fuel profits.

Aluminum producer Alcoa Inc., is set to report a loss after the market closes Wednesday. The good news is that aluminum prices have risen recently. The company has raised its forecast for annual global aluminum consumption, citing stronger demand from China.

But there are so far no signs that American consumers, whose spending accounts for more than 70 percent of the economy — including housing and health care, according to a government measure — are going back to their freewheeling days.

They continue to grapple with a weak job market and tight credit.

Shoppers "are dipping their toes in the water," said Ken Perkins, president of retail research firm Retail Metrics. "The problem is American consumers are tapped out."

Shoppers' financial strain is clear in this week's financial reports.

Costco reported that food and necessities remained popular with consumers and that new members are signing up because they can now use food stamps at some stores.

"Certainly this economy was a wake-up call," Costco's Chief Financial Officer Richard Gallanti told investors Wednesday. "It is not just very low-end economic strata that are using these that typically don't have purchasing power. It's a lot of people that are using this as a source of their overall consumption."

Restaurant operator Yum, whose 18 percent profit growth in the third quarter was largely fueled by business in China, warned Wednesday that its fourth quarter will be the low point of its year in the U.S.

Yum's sales have been dragged down largely by its Pizza Hut chain, which suffered a 13 percent drop in sales at stores open at least a year. Even value-oriented Taco Bell had a 2 percent drop in the third quarter.

"I've never seen a softer U.S. consumer than what we're seeing today, in my career," Yum Chairman and CEO David C. Novak said.

"It's the first time where I've actually seen research show that people are actually cooking more at home than what they say they intend to do," he added.

Family Dollar, whose profit rose 13 percent in its most recent quarter, said store-brand products are increasingly popular so it plans to expand those offerings as well as its food assortment generally.

"Facing continued economic pressure near term, we expect that consumers will continue to focus spending on basic necessities," said CEO Howard Levine.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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