Never Mind, People Still Aren't Buying Anything
Just when we thought we saw a light at the end of the tunnel, retail sales dropped "unexpectedly" in March after a three month period of growth. Why is this bad? Because it makes economists worry about deflation.
From Bloomberg:
Purchases fell 1.1 percent, with declines from car dealers to electronics stores and restaurants, the Commerce Department said in Washington. Only pharmacies and grocery stores saw a gain. The Labor Department said wholesale prices fell last month, indicating that deflation risks remain.
Why is deflation bad? Well, to put it as simply as possible — when prices fall (deflation) it's good for you in the short term, because you can buy a big screen tv for cheaper. But when your boss decides that since he can't sell his widgets for more than it costs to make them (in 6 months when it is time to sell the widgets, prices will have fallen and consumers might still be delaying purchases to see how much cheaper widgets will get) he decides not to invest in new widgets.
You make widgets. You do not have a job, so you watch your big screen tv and cry until the bank takes your house.
Again, it's a simple explanation of a complicated problem, but we're doing our best.
U.S. Economy: Retail Sales, Producer Prices Declined in March [Bloomberg]
(Photo:amcnair)
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Comments:
Surely there is a "guns and butter" reference we can throw in there from our Elementary School government class... yes?
Fortunately my company makes virtual widgets. So I'm feelin' pretty secure in my decision to help the economy by ordering a new bed recently.
This is one of the most concise and understandable explanations of why deflation is bad that I've ever seen. Bravo.
Some are attributing this partially to Easter being in April this year versus March last year - so this may not tell the whole story if gift purchasing/etc. was pushed into April this year.
@m4ximusprim3: you can watch Hogan's Heroes in HD while you drop a deuce.
I prefer to poop while watching Golden Girls.
My dad can use pumping up the economy as an excuse why he bought an 09 Pontiac G8 GT Saturday (which makes for a fun Easter Sunday going 100mph down the highway).
"Just when we thought we saw a light at the end of the tunnel"
TRAIN! THAT'S A TRAIN!
@m4ximusprim3: I hope by "boss" you don't mean "corporate middle manager" because in that case, many times they are cut before anyone touches the front line workers. Easier to streamline management than it is to take a hit on production.
People buy everything and anything a couple days before Easter. In my area no one bought any Easter crap until 2 days before Easter. However last minute as usual they bought out everything and anything related to Easter here. So sales will be up in April. Easter is basically Christmas in April (spring) here, where parents spend $1000 or more just to make the kid an Easter basket.
This is actually better than Christmas, because during Xmas no one bought anything here, there was tons of Christmas merchandise still left on the shelves. The toys, video games and electronics will all snapped up in record quantities though, leaving the Christmas merchandise unsold.
So in a way Easter is probably better for the retailers, as the holiday merchandise they try to sell is marked up more than the toys, video games and electronics that tend to sell over the Christmas merchandise.
@starrion:
Why does this make me think of Wayne and Garth playing hockey in the street shouting "Car!.... Game on!"
I thought the economists were worried about inflation because the US Treasury is more or less printing new money for the various bailouts/stimulus packages?
I'm sure this all goes into the category of "Nobody knows for sure", but does one report make us concerned about deflation, when there are all sorts of other things about the opposite problem?
Short term deflation shouldn't even be on the radar as a concern when we have significant long term inflation risks as the Fed works overtime to print as much new cash as it can.
Sometimes I feel like I'm the only one on the front lines, burning through cash like there's no tomorrow. The sales out there are just plain ridiculous.
Clothes - $250 Marmot Sharp Point soft shell for $150. Pretty much best-in-slot jacket until you get to about $450.
Airfare - Flying to Sydney and Cairns for under $1300. Koln, Germany was under $500 two months ago!
Hotel - Staying in a Hilton next month for $79 a night!
I already have a plasma TV and I'm not going to buy a new one just because of the sales since mine works just fine, but I hear the sales on big-ticket electronics are just insane.
If you're like about 66%-75% of Americans and you aren't going to lose your job (maybe just take a paycut) and you've been financially responsible, there are an infinite amount of deals right now. I view my spending spree as my patriotic duty. You can send me my medal now.
Dang...I better go out and buy some widgets.
After the period of inflation we just had, would deflation really be that bad. I understand that economist are scared to death of deflation but I don't really understand why. Wouldn't a little deflation be okay right now.
I totally did my part in March. I moved, from a furnished house to an unfurnished apartment, spending several thousand in the process.
Now I can't do anything in April, but I tried in March!!
@Blinky987: I admit I'm kind of falling in to this category too. Add to that I've been saving every cent for the last 7 months.
Watch Hogan's Heroes (LIKE A BOSS!)
Drop a deuce (LIKE A BOSS!)
Wipe my ass (LIKE A BOSS!)
Wash and dry my hands (LIKE A BOSS!)
Get laid off (LIKE A BOSS!)
Take unemployment (LIKE A BOSS!)
Get repossessed (LIKE A BOSS!)
Go on a rampage (LIKE A BOSS!)
@Blinky987: Yeah, its a great time to get in a lot of travel while the prices are so low, then when they climb back up not go anywhere for a while.
@BigFoot_Pete: Your forgetting that you can't say "guns" in school anymore or even "guns" and "school" in the same sentence or you will be thrown in ja
Massive deflation would be bad for the reasons you described. But a small amount of deflation would only serve to compensate for the outrageous inflation of years past.
@catdogpigduck: It's like getting home after a huge party and realizing that all the alcohol you drank is going to make you massively hung over in the morning. We had our fun, made our money, now we have to take our medicine.
Keep the cardboard box the big screen tv came in! You can live in it after they take your house!
@catdogpigduck:
Because we want to avoid giving consumers the incentive to put off purchases until they are cheaper.
@LiquidGravity: Oops... looks like someone got nabbed in mid-sentence. Let that be a lesson to you kids!
@catdogpigduck: It's the danger of a deflationary spiral that strikes fear in their fractions of hearts. To use blinky's deal post as an example, he/she mentions really good deals on a variety of items for people not losing their jobs and just taking a pay cut. As prices are lowered, earnings decrease and salaries are cut again. Then people have less money to spend and prices have to be lower to move merchandise. This could also increase outsourcing to save even more costs and cause layoffs.
The economy was made to grow and doesn't do well shrinking.
@RobGinNC:
Deflation has set in and you can't dispute it. Oil is down from $150 a barrel, housing has fallen is some areas 60%, the DOW has fallen 3,000 points, deep discounts on travel, cars, and other merchandise. You can't argue that deflation is not happening based on those numbers.
In Other News, People are still buying 98.9% as much as they were a year ago..
@Blinky987: I'm doing this too. I saved or invested over 50% of last year's take-home salary. And I'm not sure why. I think I was just being a miser. This year, I decided to be a little more spendy, and I don't feel guilty about it. Prices are so low, and I'm generally spending on experiences rather than things.
For instance:
Next week, Hubby and I are going to NYC for our wedding anniversary. We have great seats for 2 Broadway shows, and we're staying at the Carlyle Hotel, where I've always wanted to stay! Got a good deal on Travelocity. I bought a new spring jacket for the occasion. It was marked down $150 at Banana Republic. Couldn't resist.
In August, I'm going to LA for a writing conference I've wanted to attend for years. Round-trip airfare was only $300 from the east coast!
You know what, it's going to be ok. Because after 6 months of barely buying anything for myself, I went out last Saturday and bought 2 jackets, 2 shirts, and a pair of shoes. I am sure that when April's numbers come out, we'll find that my purchases totally saved the economy.
Also, I was actually able to apply Macy's coupons towards my purchase. It was a magical day.
@Blinky987: I've been kind of the same way. I've blown several thousand dollars this year already because prices are getting lower but also more importantly because (for some reason) a lot of things I've bought over the years are nearing the ends of their life cycles (with some spectacular failures mixed in), so I've been in a constant repair/upgrade mode since December. It doesn't take much to keep me happy aside from sunlight/outdoors, food, alcohol, and electronics. They're all getting better-priced these days.
@MaytagRepairman: Or, you can make a fort to fight off the repo man. Just cut a slit in it and make arrows from your neighbor's saplings!
@vladthepaler: That's what I've been forced to remind some friends. I understand that "things are bad" for many people right now; people are losing jobs, record food stamp receipts, etc. I just don't think anyone really understands the unchecked growth and expansion the country has been in for the last five or six years. It's not so much that things are so terrible now as much as that nobody knew things were so good then.
@Erica Fogg: Oh, it is very epic my friend. =D
@VeryFancyBunny: I actually lucked out due to the recession. I'm contracting as an copywriter/editor for a large entertainment company while I apply to grad schools. Because of layoffs, I've never had so much work or so much money. The selfish part of me wouldn't mind if the recession went on a little longer so that I may buy a new Honda Fit by the end of the year.
Your trip to NYC seems incredible. You can also check out the Upright Citizen's Brigade theater while there for the weekend if you're a fan of "underground" comedy.
Clothes seem to be the best deal. I also hit up my BR when they had the 20% off sale. I've been spending most of my money at REI. I replaced all my exercise and fitness items with North Face and Nike branded dry-wick items for under $200, as well as buying best-in-slot running shoes (under $150) for $70.
Again, we are heroes. True heroes. We keep our country running! /salute!
I haven't seen diddly squat in evidence that there is going to be any risk of inflation on anything I need, food, energy, etc. Energy company just asked for another 10% increase in rates here.
Are we talking about widgets like Facebook Apps? I wouldn't worry about widgets. People will ALWAYS need and want widgets. Your "simple explanation" makes ZERO sense to me.
@DrGirlfriend: I did my part in buying all 3 seasons of the Venture Brothers on DVD, though after seeing some juttering/interlacing problems with the DVDs while in my HDDVD player (have yet to play them in my Blu player to see if it was the player or the source material), I may buy the Season 3 blu rays.
The Labor Department said wholesale prices fell last month, indicating that deflation risks remain.
What?!?! Deflation risk!?!?
Since when is deflation necessarily a bad thing?
Ohh, I sure don't want that new plasma TV to be cheaper next month! [/sarcasm]
@Blinky987: Yup, me too. I've been going through hookers and blow like there ain't gonna be either left soon.
Widgets is the generic term for anything manufactured for sale. The term exists so that you can discuss manufacturing without worring about the specific item being discussed.
@m4ximusprim3: unless your company has taken billions of dollars in taxpayer money, and you just can't keep your hand out of the cookie jar. Then you're not really as safe.
@RobGinNC:
The problem with 'printing money' is when you extend the money supply beyond the available goods/services. When this happens the price of goods/services increases, but if your money supply keeps in step with available goods/services you don't have a problem, nobody instantly has thousands of extra dollars.
@wagenejm: Unfortunately, most bosses don't wash and dry their hands. Don't ask me why, or how I know this. It's just a sad fact.
The secret is to be the boss. That way, lots of people get fired before they get to you. Also, then you can buy two big screens, one for the living room and one for the bathroom, so you can watch Hogan's Heroes in HD while you drop a deuce.
Yep, it's good to be the boss.