Saturday, June 13, 2015

Strong Retail Sales Does Not Mean A Growing Economy

Last Thursday, the retail sales numbers saw a surge; prompting the news agency Reuters to state this:
U.S. retail sales surged in May as households boosted purchases of automobiles and a range of other goods even as they paid a bit more for gasoline, the latest sign economic growth is finally gathering steam.
What I take issue with is the "finally gathering steam" statement.  Quite simply, a retailer can have stronger sales, not just because of more foot traffic to their store, but also because they may have been forced to raise prices.  If a retailer doesn't have enough sales to pay the bills, it will have no other choice but to close its doors.  This is a reality that is growing in strength, and which, belies the "gathering steam" comment.

The fact is, that American national retailers are suffering. Dozens of them are announcing store closures.  CNBC predicted this a year-and-a-half ago with their story titled  "A 'tsunami' of store closings expected to hit retail".  Since that story was run, Radio Shack has announced the closure of 1784 stores due to bankruptcy.  McDonald's is shuttering 700. The combined Office Depot/Office Max operation is closing 650 retail operations, and their chief competitor Staples, 225. Others include 200 Walgreens; 338 Wet Seal; 77 Sears; 100 Pier One's, 300 Deb Shops; 40 J. C. Penney's; and on and on with a list too long to enumerate (See References). 

In addition, shopping malls are also shuttering their doors.  Forbes is predicting 300 Mall closures in the next 10 years, mostly because they are losing their "anchor" stores like J.C. Penney,  Sears, and Macy's.  But, when a mall closes its doors, so do the dozens of small retail stores that probably won't survive without the large amount of foot traffic a mall provides.

We're six years passed the end of the Great Recession and we are seeing national chain store closures as if we were still in the midst of it; leaving us to question whether or not small local retailers are also closing at that same high rate.

I personally believe that "retail" is hitting the proverbial "brick wall".  You have a consumer who has so little money to spend after necessities, that you would have to go back 20 years to see the real median household incomes this low.

Then, retail prices are being driven higher by a variety of factors.  For starters, this is the first year that the employer mandate of ObamaCare kicked in.  Thus large national chains are being forced to provide health care insurance or pay a fine of between $2000 and $3000 for each employee not properly covered.  On top of that, liberal state legislators and city councils are raising the minimum wage.  For example, California's minimum wage was raised to $9 this year; and will go to $10 as of January 1st.  Additionally, President Obama, through executive order, is expected to force any employer, whose salaried workers make less than $52,000 a year, to pay overtime (time-and-a-half) when they work more than 40 hrs/wk..

The increase in retail sales is more about higher prices and not increased sales. Simply, the consumer is cash strapped and marginal retail operations are being forced to close their doors due to declining foot traffic.  


Strong U.S. retail sales boost growth outlook:

A 'tsunami' of store closings expected to hit retail:

Store Closings Index 2015 of Largest US Brick-and-Mortar Retail Chains:

Some 300 malls should close in the next decade:

Real Median Household Income in the United States - FRED:

ObamaCare Employer Mandate - ObamaCare Facts:

State Minimum Wages | 2015 Minimum Wage by State:

White House plans to force business to pay more overtime:

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