MaxedOutMama
Wednesday, May 06, 2009
Thinking And Talking
I am still trying to figure out what I think is causing the havoc in the grocery stores. I talked to a NG distributor, and they told me they have tons of people cash-only and their sales are lower than expected for this time of year. Tomorrow I'll see if I can get some info from a heating oil distributor.
I went to a supermarket and checked around this morning. The prices are still falling. This started toward the end of March and just keeps going. The store I went to this morning is a mid-to-upper scale grocery (indexed nationally) and not a discounter. It's been very busy, because it is exceedingly well-managed. That's one reason I spend a lot of time at this particular store - you can just glance through the shelves and see what things are like at the distributors. This store is very clever at buying whenever someone's trying to dump product, and distributing the goods around so that people can usually walk in there and make their food budget for the week. They won't necessarily be eating their favorites, but they will be eating.
Shampoo at 66 cents, ground turkey 88 cents, 2 boxes of biscotti for $1.50, a pound of pasta for 99 cents, canned goods came down again, except for tomatoes which have been running $1 per large can of crushed for a while on the cheaper brands. What's different now is that a bunch of the brands are at that $1.
The frozen pizza war was decided in the brand names' favor. One of the trends has been for all the big grocery chains to go to store brands to pick up that extra profit margin. The frozen pizza brands fought back by cutting and cutting and cutting until the store brands were dropped. There appears to be room for high-end products, but store brands usually can't succeed there.
I can't account for what I am seeing in the stores. One factor may be the leftover energy push. In the colder regions of the country, it was quite a cold winter and prices began very high. So a lot of people are still lagging - maybe out a few thousand for money they spent on heating during the winter.
But usually, during the May-June segment, buying capacity is near its yearly height. For almost all regions of the country, heating/cooling costs are low. There's a natural spring pickup of sentiment too. But this year looks like a dud. Two more weeks will tell the tale.
You could see that the food distributors and producers were trying to make up some of their lost profit ground this spring in the stores, but this time they couldn't. Then they just started staggering around the middle of March, and all of a sudden the race to the bottom picked up.
Because grocery stores are acutely sensitive to changes in buying power and in consumer sentiment, they are by far the best indicator for consumer-related economic changes. What I am seeing over the last 8 weeks translates into hard times for retail for at least most of the rest of 2009. The next possible break upward would likely come just before fall, when people are beginning to look at heating costs and allocate their winter budgets.
Some of this must be older people concerned about their children - whether lost jobs or lost income. You can't get the change I am seeing in stores just from current job losses.
The reason why I am weighting so heavily on consumer behavior is that first, it relates to a large number of jobs. Right now jobs, even if not paying well, are very important. Second, the business trends are so poor that we are going to see continued declines in capital spending (i.e. poor gross private domestic investment). Ag is getting dicier, commercial building is on a long decline, residential building is still slowing, and our current stimulus just didn't put much money into building. So the consumer is going to have to start carrying the economy for a bit.
The downturn appears to be very widely spread. WalMart is reporting tight conditions, and most higher-end stores are in bad shape. Some teen stuff is holding up. There is some regional difference, in that retail in the south and southwest seemed better. So I feel somewhat safe in attributing some of this to the winter heating costs.
However, the downturn beginning in March must be very widely based. Rail traffic has shown an unrelenting weakening since then, and trucking, which reports later, is seeing the same.
As for those green shoots, the latest ISM survey showed continued cutting in 2009 plans, and it is severe enough to indicate a broad-based contraction through at least the third quarter. At this rate, I am having trouble envisioning a best-case scenario of a marginally positive GDP in fourth quarter.
But here's the kicker - next year in first quarter not only does some of the stimulus expire, but there is a give-back on those consumer tax credits that is going to be substantial enough to affect spending. It has to do with multiple incomes and the way the IRS adjusted income tax tables. Basically the way it will work is that if you don't compensate on your own, a lot of people are going to have that tax credit double-counted, and they will get a nasty surprise when they file in 2010. Since a lot of people get money back and count on that money, the effect will show up quite quickly in the larger economy.
I have to check a few more places and types of stores, and then I'll be ready to sit down and give an updated projection my best shot. Right now it looks uglier than sin.
I am guessing I under-weighted the implications of demographic changes in this downturn. When folks get older, they give more away and they react more to changes in their children's circumstances than their own. So consider a couple in their late 50s that has two adult children living separately, one married and one single. I can well see that couple being worried about one or both of the children and trying to conserve spending in order to be in a position to help. Because of demographic changes, this could be affecting spending patterns more than I had expected.
The light staffing in heavily trafficked stores is not a good indication for the economy.
I'm going to wander around to some banks and chat up branch personnel to see if I can get any anecdotal confirmation of my old-generous-fogies hypothesis. Hopefully, this time I won't get flagged by as many cops as I was last time. I'm beginning to expect to see my face on the suspicious list! It's a tribute to the police and security, though.
I went to a supermarket and checked around this morning. The prices are still falling. This started toward the end of March and just keeps going. The store I went to this morning is a mid-to-upper scale grocery (indexed nationally) and not a discounter. It's been very busy, because it is exceedingly well-managed. That's one reason I spend a lot of time at this particular store - you can just glance through the shelves and see what things are like at the distributors. This store is very clever at buying whenever someone's trying to dump product, and distributing the goods around so that people can usually walk in there and make their food budget for the week. They won't necessarily be eating their favorites, but they will be eating.
Shampoo at 66 cents, ground turkey 88 cents, 2 boxes of biscotti for $1.50, a pound of pasta for 99 cents, canned goods came down again, except for tomatoes which have been running $1 per large can of crushed for a while on the cheaper brands. What's different now is that a bunch of the brands are at that $1.
The frozen pizza war was decided in the brand names' favor. One of the trends has been for all the big grocery chains to go to store brands to pick up that extra profit margin. The frozen pizza brands fought back by cutting and cutting and cutting until the store brands were dropped. There appears to be room for high-end products, but store brands usually can't succeed there.
I can't account for what I am seeing in the stores. One factor may be the leftover energy push. In the colder regions of the country, it was quite a cold winter and prices began very high. So a lot of people are still lagging - maybe out a few thousand for money they spent on heating during the winter.
But usually, during the May-June segment, buying capacity is near its yearly height. For almost all regions of the country, heating/cooling costs are low. There's a natural spring pickup of sentiment too. But this year looks like a dud. Two more weeks will tell the tale.
You could see that the food distributors and producers were trying to make up some of their lost profit ground this spring in the stores, but this time they couldn't. Then they just started staggering around the middle of March, and all of a sudden the race to the bottom picked up.
Because grocery stores are acutely sensitive to changes in buying power and in consumer sentiment, they are by far the best indicator for consumer-related economic changes. What I am seeing over the last 8 weeks translates into hard times for retail for at least most of the rest of 2009. The next possible break upward would likely come just before fall, when people are beginning to look at heating costs and allocate their winter budgets.
Some of this must be older people concerned about their children - whether lost jobs or lost income. You can't get the change I am seeing in stores just from current job losses.
The reason why I am weighting so heavily on consumer behavior is that first, it relates to a large number of jobs. Right now jobs, even if not paying well, are very important. Second, the business trends are so poor that we are going to see continued declines in capital spending (i.e. poor gross private domestic investment). Ag is getting dicier, commercial building is on a long decline, residential building is still slowing, and our current stimulus just didn't put much money into building. So the consumer is going to have to start carrying the economy for a bit.
The downturn appears to be very widely spread. WalMart is reporting tight conditions, and most higher-end stores are in bad shape. Some teen stuff is holding up. There is some regional difference, in that retail in the south and southwest seemed better. So I feel somewhat safe in attributing some of this to the winter heating costs.
However, the downturn beginning in March must be very widely based. Rail traffic has shown an unrelenting weakening since then, and trucking, which reports later, is seeing the same.
As for those green shoots, the latest ISM survey showed continued cutting in 2009 plans, and it is severe enough to indicate a broad-based contraction through at least the third quarter. At this rate, I am having trouble envisioning a best-case scenario of a marginally positive GDP in fourth quarter.
But here's the kicker - next year in first quarter not only does some of the stimulus expire, but there is a give-back on those consumer tax credits that is going to be substantial enough to affect spending. It has to do with multiple incomes and the way the IRS adjusted income tax tables. Basically the way it will work is that if you don't compensate on your own, a lot of people are going to have that tax credit double-counted, and they will get a nasty surprise when they file in 2010. Since a lot of people get money back and count on that money, the effect will show up quite quickly in the larger economy.
I have to check a few more places and types of stores, and then I'll be ready to sit down and give an updated projection my best shot. Right now it looks uglier than sin.
I am guessing I under-weighted the implications of demographic changes in this downturn. When folks get older, they give more away and they react more to changes in their children's circumstances than their own. So consider a couple in their late 50s that has two adult children living separately, one married and one single. I can well see that couple being worried about one or both of the children and trying to conserve spending in order to be in a position to help. Because of demographic changes, this could be affecting spending patterns more than I had expected.
The light staffing in heavily trafficked stores is not a good indication for the economy.
I'm going to wander around to some banks and chat up branch personnel to see if I can get any anecdotal confirmation of my old-generous-fogies hypothesis. Hopefully, this time I won't get flagged by as many cops as I was last time. I'm beginning to expect to see my face on the suspicious list! It's a tribute to the police and security, though.
