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Thursday, October 28, 2010

Sure 'Nuf

I have been desperately crunching numbers and stepping up the retail survey.

And over the last ten days there is clear drop in the retail survey. It won't show in the official numbers because consumers are shopping very early this year for Christmas, which will distort the seasonal reporting. But underlying retail is busting hard on gas and inflation.

In short, the Fed is committing a massive error, and if it tries to carry forward its asset-buying plan it will almost certainly produce a new contraction.

As it stands, we are now in a very solid recovery (or were, before the Fed got all antsy). It would not have looked like it until almost the beginning of the third quarter next year, because the economy is now absorbing the impact of the state and local government fiscal disaster and the large number of unemployed people who are losing their benefits as they run out their 80-99 weeks.

Nonetheless, the floor has continued to firm, and we would have shifted into nicely solid growth (in the mid 2's) next summer.

But the Fed has already cut a group of consumers off at the legs, and depending on its stubbornness, it may completely destroy this "virtuous" cycle. This cycle would have had some staying power because consumers have sharply shifted their behavior and are more conservative, so they are not building up deathtraps for themselves and the economy.

Today's low headline initial claims number doesn't mean anything. It is the product of the normal October seasonal adjustment choppiness. This year they are very choppy indeed. You can see seasonal adjustments for years on end at this link by pulling the report for the years you want. Still, the four-week moving average is pretty indicative, and its continued slow decline is telling us something real about the economy.

The current retail trend is going to hurt some chains badly. The combination of much higher stocking and poor late-season performance will make February a very sad month.

Comments:
Inflation?

Inflation????

The Powers That Be *ASSURE* us that there's been no inflation. Sure, food costs more, personal care products cost more, cat kibbles went up about 20% (my little furrys are just darn lucky I love them), and our local Gas & Electric company went to tiered pricing this summer (don't want the peons to think they can just cool their houses with impunity, you know), but inflation? Noooo. (hah! or rather, bah!)
 
What's next, Mr. Carter telling us to wear a sweater and get over our malaise?
 
I have to disagree on the recovery analysis.
A lower standard of living coupled with higher
taxes will kill any discretionary spending. The
descent may have slowed but there has been
no upturn. How long can an aging population
Increase productivity ? Perhaps the health
Problems so prevalent among the 50 plus crowd
are the price from being a rat on a wheel.
Sporkfed
 
I have been surprised at the return of layaway. Right now, KMart and Sears are advertising that. It makes sense with the changing of the credit cards, but I suspect that may turn out to be a part of your claim that consumers are shopping early. If not actually using layaway, then they are spreading Christmas expenses over more months.
 
But the Fed has already cut a group of consumers off at the legs, and depending on its stubbornness, it may completely destroy this "virtuous" cycle.

Yes, but the Banks are in more trouble than ever. Why do you keep thinking the FRS or the gov't cares about *anything* else?
 
Rick Caird,

Here's what surprises me.

Kmart Layaway

Service Fee is $5 for all new layaway contracts.

It costs you $5 to promise you'll buy a product from them over one of their competitors.

Cancellation Fee is $10 for all new layaway contracts.

It costs you an additional $10 to break that promise and/or simply miss a payment (with a 7 day grace period).
 
Mark, I am not sure why you are surprised. Layaway is a service. It requires the store to hold inventory and to perform additional accounting.

What? You think it should be free?
 
It's not a matter of "should be free." Back when, it was a free service (even if it cost the retailer something). Now, there's substantial service charges.

Absent any objective analysis of the merit of the service charges, it's news that the formerly free (to customers) service is now a revenue stream.

I see an interesting article somewhere about how service charges (airline baggage fees) are a better free market tool; customers get to see actual costs, and are able to make more informed decisions. Of course, the same article in a different publication would decry the nickle-and-diming of the poor, suffering consumer.
 
RE: the original point by MOM

All I know is that there's a lot less money being spent by suppliers for merchandising. This is anecdotal, but I'm in a large retail service area, and the amount of merch work is way down over last year (and last year was substantially down from 2008).
 
I am not agreeing, Gordon. Layaway has basically been dormant since the advent of universal credit cards. Credit cards have always had a cost with charging an item and then paying for it over several months.

Layaway is likely cheaper than the cost of credit. But margins are thinner than they were before Walmart, so it is harder to roll up the cost of layaway into the product.

Next topic: the return of Christmas club banking.
 
Gordon - I think it is low margins. Also there is a personnel cost.

You find the chains catering to the poorer crowd doing this, but they do pull the stock off the floor and it is worth it to ask enough up front to ensure that the person is likely serious.

One way to think about it is this: If the person is going to be able to come up with the money by the demand date (back-to-school, birthday, the holidays) they really should just save the money and buy the thing when they have the money. If it is a short-supply item that may be out of stock later, then one can see the point of layaway for the customer, but it implies that in fact the store is deferring sales revenue rather than net-gaining revenue.

So you are going to have a relatively high-drop out rate and a lot of processing costs.
 
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