Wednesday, May 21, 2014

Retailers Are Signalling Economic Woes For 2014

In the first quarter of this year, the nation's economy, as measured by Gross Domestic Product (GDP), grew at a barely measurable rate of one-tenth of one percent. That was a 93% miss from the 1.5% that the economists were originally projecting.  In defense of this horrible number, the Obama Administration blamed the lack of economic growth on low consumer spending; all because of the bad weather in the Northeast and Midwest in January through March of this year.

However, having lived in the Midwest for many years, the forecast of a bad storm actually forces store shelves to be emptied.  People buy things they otherwise might not buy; like snow blowers, generators, space heaters and a whole host of other products.  They stock up on food and water.  And, after the storm has passed, consumers replenish what they used and typically buy the things they weren't able to   during the storm.  So, typically, the economic impact is not that significant; especially since most of the rest of the country is unaffected by any regional activity.

The problem with the "bad weather" excuse is that it ignores a deeper problem that is hurting our economy.  That problem that consumers aren't buying like they used to. The major retailers such as Wal-Mart, Kroger, Target and Macy's are all seeing changes in buying habits.  People aren't splurging on non-essential products.  In fact, they also aren't buying as much food. Wal-Mart, despite having lower grocery pricing than their competitors, has consistently seen a drop in grocery revenues.  Last quarter, grocery sales, among all the stores that were in operation a year or more, dropped nearly 1%.

Going forward, every retailer is warning that their earnings are at risk this year due to a slow down in consumer spending.  Since consumer spending makes up 70% of GDP, any drop could cause the economy to stall and, as a result, fall into another recession.  If the next revision of the current GDP growth of 0.1% goes negative in a couple of weeks, it could signal the first of two quarters of negative growth which, by definition, is a recession.


Target echoes warnings about cautious consumer patterns:

Wal-Mart is hurting for shoppers: Wal-Mart woes deeper than winter snow:

Wal-Mart's biggest problem: Its customers:

Kroger...cautious in its earnings guidance for the year, citing uncertainty around the economy:

First-Quarter U.S. Economic Slump Looking Uglier by the Day:

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