To gauge consumers' strain, look no further than the rows and rows of plastic bags awaiting layaway payments at Kmart. They are filled with back-to-school basics -- not just T-shirts and jeans but notebooks, magic markers and pencils.
It is unprecedented for layaway rooms to be so packed at back-to-school time and for the packages to include relatively cheap school supplies.
A record number of shoppers, shut off from credit and short on cash, are relying on Kmart's layaway program to pay for all of their children's school needs, said Tom Aiello, a spokesman for Kmart's parent company, Sears Holdings. Layaway allows shoppers to pay over time, interest-free, and pick up their merchandise when it's paid in full.
"It's a sight. In the past, we would see layaway start to pick up around Halloween" as people get a jump-start on Christmas, said David Travis, manager of a Kmart store in Conover, about 160 miles west of Raleigh.
Burlington Coat Factory Warehouse said its layaway business is stronger than a year ago. E-Layaway.com, which offers online layaway services for about 1,000 merchants, has seen its business double from the same time last year. Customers are setting aside even $25 calculators and $30 backpacks.
The word "layaway" had more than double the interest among U.S. searchers in August 2009 than it had in August 2008, according to Google Insights for Search.
Retailers that don't offer layaway say financially strapped shoppers are buying smaller amounts of merchandise and using more cash than credit to pay.
"It just tells you that consumers have no money; even that $30 backpack is something they can't afford," said C. Britt Beemer, chairman of America's Research group.
Layaway has its roots in the Great Depression. It fell out of favor in the past two decades with the rise of credit cards.
But the recession and financial crisis have caused banks to raise rates, pare credit limits and close accounts. For some consumers, layaway is the best way to budget for purchases.
Buying a little at a time and other signs of stress are casting a dark cloud over the holiday season, which accounts for as much as 40 percent of annual sales for many retailers.
Holiday season worries
Many economists expect to see another holiday season of sales declines, on top of last year's 2.5 percent decrease. That's raising more doubts about an economic recovery, because consumer spending accounts for 70 percent of U.S. economic activity.
Travis of Kmart predicts that Christmas will be a record-setting layaway season.
The worries about a weak Christmas come amid a back-to-school season that the National Retail Federation expects will see families cut 8 percent of spending from last year.
Tracey Y. Chandler of Rocky Mount started using Kmart's layaway at Christmas as the economy soured and this past summer to furnish her 8-year-old daughter's bedroom. Last weekend, she put aside $150 worth of back-to-school clothes at Sears stores.
"The job market is too unstable to take on additional debt," said Chandler. She and her husband both work as teachers' assistants, and she fears they could be casualties of budget cuts.
Old ways new again
Sears Holdings brought back layaway to its namesake department stores last holiday season after a two-decade hiatus.
Competitors have been slow to follow, which may give Sears and others that offer layaway an edge.
Walmart discontinued the practice in 2006, except for jewelry, citing rising costs and falling demand. Melissa Garcia, who writes the Consumerqueen.com blog, said more moms are asking stores to bring back layaway. "They just don't want to disappoint their kids," she said.
Wells Fargo economist Mark Vitner estimates that holiday sales will fall 3.5 percent, on top of the declines posted a year ago.
Many people's economic situations have worsened since Christmas, said Michael Dart of consulting firm Kurt Salmon Associates. "This year, customers' problems are more concrete: job losses, reduced hours and reduced or unavailable credit. This holiday, they're facing the reality."