Tuesday, October 6, 2009

Nobody Pays Wholesale Anymore

Other than food – and even there, come on, those coupons make a difference – how many folks out there are buying anything at full retail?! Perhaps someone who does such a foolish act can instantly be diagnosed as either mentally ill or the lucky (??) scion of an Arab monarch. Sheiks being chic! With home prices down an average of 30% (or more!) compared to last year, cars selling for clunker-trade-ins, hotel rooms averaging 20% less than last year (the first time that’s happened since they’ve been checking)… and luxury goods seem to be perpetually on sale.

AOL Daily Finance (October 4th): “Overall, prices are tumbling at the fastest rate in decades. The government's Consumer Price Index, which measures the average price of goods and services purchased by households, has fallen 1.5 percent over the last 12 months. The reading for July showed a 2.1 percent annual decline, the biggest since 1950.”

Even those who can afford to pay full freight are learning to pause and wait for the same treasure to be on sale… and sooner or later, it will be. Others, with a more predatory personality, are waiting for those big luxury retailers to fold their tents and declare bankruptcy. Boy, talk about sales!

The hidden risk in all of this is pretty obvious. Goods sold for less than they cost to make aren’t going to be made anymore… and the folks who made them are going to remain out of a job. In fact, all those reductions pretty much signify jobs lost, payrolls cut, and salaries and wages pared to the bone. We call this nasty phenomenon “deflation.” Add a devaluing currency, and you get “stagflation.” It’s almost all bad even though it feels so good.

Keep your eye on trucking and shipping. When those industries show an uptick, goods are moving and people are working again. Traffic’s been pretty light these days, even in car-impaired Los Angeles. But goods are selling as huge discounts, often because the manufacturer or retailer needs cash, and there are almost no banks providing the underlying normal business credit that has previously fueled our ordinary operations and modest growth. This is contraction!

Psychologists noted that The Great Depression left many who lived through that incredible collapse with a permanent resistance to spending money without careful consideration. I’m being polite, and my father was one of those miscreants. He bought virtually nothing new, despite having a good job as a journalist back in the days when there were such jobs, and was proud of his bargaining hunting ability. When he died, I don’t think there was a single item in his household that was bought new except toothpaste and his toothbrush!

We are very likely to see a persistent resistance to buying at anything like the pre-meltdown pace well past anyone’s definition of a recovery. And that augurs for even slower internal consumer growth rates. Can we export more and consume less? That would be wonderful, but consumers globally are also cutting back, and this lesson seems as if it has some sticking power. Manufacturers are already cutting frills from the next generation of products, because with tighter margins, they simply cannot afford to provide the highest levels of choice we were once used to. For many of us, this is how life is going to be from now on. And exactly how do we explain our miserly attitude based on this collapse to those too young to know what is happening and those yet unborn? “Mommy… Daddy… why can’t I…..”

I’m Peter Dekom, and I approve this message.

No comments: