The WSJ is out with some more data that shows consumers have no intention of buying anything more than the essentials:
Major retailers reported that American consumers are continuing to hunker down, casting a cloud over the durability of the U.S. recovery and underscoring the importance of overseas demand in restoring the world economy to health.
Retailers across the spectrum provided foreboding reports. Discounter Target Corp. reported that sales at stores open at least a year were down 6.2% from the year earlier in the quarter ending in July, while luxury purveyor Saks Inc. reported a 15.5% drop in same-store sales over the period as shoppers stuck to buying basics. Building-supply chain Home Depot saw total sales drop 9.1% in the quarter ending in July, and it reaffirmed expectations of a 9% sales drop this year.
Retail executives said they don’t expect conditions to improve until next spring. Some stores are girding for slow back-to-school and Christmas seasons by cutting inventories.
Home Depot chief executive Frank Blake told investors Tuesday that he didn’t expect a year-over-year increase in same-store sales until the second half of 2010. “We remain concerned by the high level of foreclosure activity, which we believe continues to put pressure on the housing markets,” he said.
American consumers appear so shaken by the worst recession since the Great Depression — and so pinched by unemployment, stagnant wages and stingier lenders — that they are reining in spending on all but basics. Economists also see an upturn in U.S. household saving as the beginning of a prolonged period of thrift.
The retailers’ reports serve as a reminder of how it will be consumers, foremost, who will fuel a sustained U.S. recovery. Consumer spending accounts for about 70% of all demand in the U.S. economy.
Before I comment briefly on this news, let me take a slight detour and point out something that BusinessWeek’s economist Michael Mandel noted last week. The oft repeated statistic that consumer spending accounts for 70% of all demand is a bit misleading. Here is the error in the statement:
First, the category of “personal consumption expenditures” includes pretty much all of the $2.5 trillion healthcare spending, including the roughly half which comes via government. When Medicare writes a check for your mom’s knee replacement, that gets counted as consumer spending in the GDP stats.
At a time when we are wrangling over health care reform, it’s misleading to say that “consumer spending is 70% of GDP”, when what we really mean is that “consumer spending plus government health care spending is 70% of GDP.”
OK, now that that’s out of the way what can be gleaned from the sales numbers? Not much more than what we already know, the consumer is either broke or convinced they are about to be broke and have no intention of spending money frivolously. Whether they have been converted to Japanese style savers remains to be seen but for now they aren’t buying.
Based only on anecdotal evidence, I happen to think that a lot more people are living on the margin than the government statistics would lead us to believe. Furloughs, unpaid leave, across the board salary reductions and the other “creative” measures that corporate America has devised to preserve their bottom line are taking a toll. The employed are suffering not as much as those without a job but they are suffering nonetheless.