The Economy Has Turned the Corner, Mostly

Discussion
Apr 16, 2010

By Al McClain

According to Ken Kremar,
Sara Johnson, and Laura Hodges on an IHS Global Insight webinar yesterday,
the U.S. economy has turned the corner and prospects for the mid-term look
pretty good, albeit with a number of caveats. The presenters said they see
a moderate U.S. recovery, with consumers cautiously increasing spending as
incomes rise, although they look for a bumpy housing market recovery and lingering
high unemployment.

IHS Global Insight sees competing forces affecting consumer finances, with
income growth, low inflation, low interest rates and a stock market rally on
the positive side battling with high unemployment, reduced asset values, tight
credit, and high debt burdens on the negative side. Their forecast shows consumer
consumption advancing in the two to three percent annual range through 2012,
which, while a nice increase vs. 2008 and 2009, is still not what we were used
to seeing before that. At the same time, the savings rate should continue to
climb all the way through 2020, as households struggle to rebuild their net
worth.

Motor vehicles, consumer electronics, and healthcare are seen leading consumer
spending growth with the expansion gaining momentum as employment slowly recovers.
But consumers will continue to look for value and spend cautiously as the
recovery in real household net worth takes until 2015.

For retail (excluding auto), IHS Global Insight sees growth in the four to
five percent range from 2010 through 2015. Channels where the highest growth
is expected include online, warehouse clubs, superstores, consumer electronics/appliance
stores, food and dollar stores. Other channels that will start to do well again,
although not until 2011, include building materials and hardware, furniture
and restaurants. Department stores, apparel and sporting goods retailers will
show modest to moderate growth as well.

Discussion Questions: Do you believe that the recession is over and is
retail now in the midst of a recovery? Which channel will do best as
consumers start to spend again? How should retailers align themselves to
a slow recovery?

[Editor’s Note] In related retail industry news: 


  • Retail sales in March were up 1.6 percent, the biggest jump in four months,
    according to the Commerce Department. Economists surveyed by MarketWatch
    had forecast an increase of 1.3 percent. 

  • Gartner recently announced that worldwide shipments of personal computers
    grew more than 27 percent in the first quarter. 

  • Greater numbers of consumers are going out to eat and fewer are looking
    for deals to motivate them to visit restaurants, according to new research
    from The NPD Group.

 

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18 Comments on "The Economy Has Turned the Corner, Mostly"


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Roger Selbert, Ph.D.
Guest
Roger Selbert, Ph.D.
11 years 1 month ago
In the current issue of Growth Strategies, I evaluate “Where Next for the Economy.” My conclusion is basically slow growth for years, at best (contact me for a free issue). 1 – THIS IS A RECOVERY?2 – THE RECOVERY THAT NO ONE WANTS TO BELIEVE IN3 – IN THE AFTERMATH OF THE GREAT RECESSION4 – WHAT ECONOMISTS AT KIEL TOLD US5 – WHAT CONSUMERS ARE TELLING US What are consumers telling us? The monthly Consumer Demand Index–our proprietary national survey of US households’ purchasing decisions–moved slightly up in March, but remains in negative territory. The CDI now stands at -1, up from -3 in January and February. The 3-month moving average however went down into negative territory for the first time since November 09, and now stands at -2.5. Both the current and 3-month indexes are dramatically higher than in March 2009, but the significant upswing we have seen since June 09 has lost momentum. For perspective I turn to Jorn Thulstrup, CEO of the US CDI. He writes: “I am as you know a… Read more »
David Livingston
Guest
11 years 1 month ago

I think the recession was over about 18 months ago and since then, the economy has been exploding. Perhaps it’s recovering too quickly. I can’t remember when business and the stock market has been so good while housing prices are so affordable. Unemployment is still a little high but that will recover once unemployment benefits run out and people opt back into the workforce or move on to self employment.

What is changing is people are smarter consumers. They are no longer handing over their money aimlessly to under-performing retailers. Good retailers are now on the fast track for growth as their weaker competitors are disappearing quickly. Good retailers in all channels are recovering. If a retailer is not recovering, then they are not a good retailer, and therefore for them, it will always be a recession.

Doug Stephens
Guest
Doug Stephens
11 years 1 month ago
Define recovery? If we take it to mean relative stabilization of banking, markets and consumer sentiment, then I agree. If on the other hand we’re looking for any sort of return to pre-2007/8 consumption, I disagree. The tough part in gauging recovery is that we have two things happening in the retail market at the same time. One is gradual, albeit painful healing of the basic economic system. But the other is a fundamental shift in demographics that is bringing the downsizing of the largest generation of consumers in history–the Baby Boomer. Research indicates the primary focus for Boomers which are peaking at 55 years old this year, is rebuilding their savings in preparation for retirement. Combined with the fact that statistically we buy less stuff when we hit 50, this will widely dampen sales in certain categories. There’s really no other generational cohort (for the moment) who can fill their shoes. All indications are that these two phenomenons will net each other out over the next 5-10 years and put a drag on growth.… Read more »
Bob Phibbs
Guest
11 years 1 month ago

The recession is not over but just as important, another depression didn’t happen. Retail was overbuilt like housing by about 20%. The shakeout continues but it is a normal part of the business cycle. Hopefully we are done with the “doom and gloom” and the “fundamentally, shoppers have altered behavior forever” reports.

Mark Burr
Guest
11 years 1 month ago
My short answer is no. No corner turned, no end in sight. And even worse, the possibility of a ‘double dip’ is very real. There are positive signs. There may be regional pockets but nothing cohesive nationally. There seems to be a pulse throughout a lot of what I read that indicates if you say so, it will be. It’s sort of like Wal-Mart saying it has the lowest prices as much as they have, it’s the perception–it becomes the acceptable truth. Likewise, if you say the economy is better enough, it will be–it will be the acceptable truth. The truth is, if it is turning the corner, its turning it very slowly. I’ll accept that. It’s not bad if it actually is; but do we really believe it is? My vision is through a regional glass. I admit that. Yet through that glass, I see it quite murky at best. Unemployment in the majority of the counties of my state is between 25-30%, while the state average is 14% plus. The only positive indicator… Read more »
Ben Ball
Guest
11 years 1 month ago

A “W” has a peak in the middle.

Current improvements are not based on a clearing of the fundamental issues impeding the economy. “Jobs” are weaker than reported by the 160,000 temporary census employees at a minimum. Banks are returning to profitability based on trading profits derived from investing money borrowed at zero interest from the Federal Reserve in U.S. Treasuries paying 4%. Gains in U.S. stock indexes are being realized based on the thinnest trading volume in recent history. Not by the consumer or the foreign sector flooding back into the market with confidence in the future. Manufacturing recovery is due to increased demand for exports–not increased U.S. consumption. And U.S. retail sales gains over the past two months are driven by seasonal shifts in Easter spending.

Other than that I feel very confident.

Gene Hoffman
Guest
Gene Hoffman
11 years 1 month ago

For 80% of the population the recession is showing slight signs of minor improvement. For the other 20%, the job seekers and the those that have stop looking for a job, the recession is really a depression.

Unless potential employers feel the psychological climate for hiring new permanent employees has improved and will be sustained, any advance in retail sales will be created primarily by employed consumers. To get the economy rolling dynamically again there must be greater employment among America’s consumer citizenry.

Mel Kleiman
Guest
11 years 1 month ago

The economy has moved from intensive care to the critical care stage. A semi private room with 24 hour nursing care–we the tax payers who are left are paying for the nursing care. Yes, the economy looks like it is getting better and it is off of its death bed for right now but it is still on the critical list. If it does not have a relapse, it is going to take a lot of rehabilitation until it is healthy and the worse place to try and get healthy is in the hospital.

Li McClelland
Guest
Li McClelland
11 years 1 month ago
The stock market has been doing quite well recently, but all the people whose 401Ks and IRAs were decimated have still not caught up. The 55 to 60 year olds who have lost their jobs over the past two years have more or less accepted that they are not ever going to be going back to work at the same level of salary and responsibility they once had. New college grads are not getting hired and are choosing to continue in school and/or live at home rather than set up new households. Every block in America has at least one home “for sale” sign, often several, and any real estate agent will tell you that while business has picked up a little, there are still just not many available/willing/qualified home buyers. Upper echelon earners, doctors and entrepreneurs, (at least the ones I know) are traumatized by recent events in Washington and are waiting–biding their time–almost in limbo–to see what the tax impacts on themselves and their firms are going to be. Perhaps the fear has… Read more »
James Tenser
Guest
11 years 1 month ago

A surge in the Dow does not an economic recovery make.

I’m quite troubled by the apparent disconnection of the buoyant securities markets from the realities at America’s kitchen tables. For a more realistic perspective, the seers must also look at the slow-motion disaster now enveloping such bedrock institutions as our public schools and municipalities. The job losses there are profound, and the damage to our cultural and economic well-being will haunt an entire generation.

I don’t think we’re in a double-dip recession. I think we’ve turned a somewhat ominous corner into a new reality in which daily life will remain more challenging for a great many working people for years to come. “The Economy” may be improving a little, but America’s underlying strength has been set back. Will we recover? I believe yes, but the process will be painstaking for a while.

Al McClain
Guest
Al McClain
11 years 1 month ago

Lot’a and lots of pessimism in the above comments. We hit a deep enough trough in The Great Recession that even as the stats improve, it is going to take a long while to gain back the confidence of the consumer, and the pundits.

Roger Saunders
Guest
11 years 1 month ago
While the authors believe that the economy has ‘turned the corner’, that thinking is NOT consistent with that of the consumer. The April, 2010 Consumer Intentions & Actions (CIA) Survey, that will be released next week asks 8,400 Adults, 18+: “Do you think the recession is over?” Over 77% said that they DO NOT believe that the recession has run its course. While it is true that portions of the economy are recovering, the consumer is wise enough to understand that it is happening in select areas. For example, if you are in California, Hollywood and the Tech business are doing well. But don’t tell the 12%+ unemployed in the Golden State that matters are OK, or ask the financial folks in the State House if they have enough money to unravel a debt load. Similarly, if you’re raising corn or soybeans on the farm, the consumer is coming off a great year. They are likely to have plantings that will be up at least 3% to 5% this year. But don’t tell the hog… Read more »
Ted Hurlbut
Guest
Ted Hurlbut
11 years 1 month ago

For independent retailers, any reports that the recession is over are still premature. At best, business has stabilized, but at levels that are significantly below where it once was, and at levels where cash flow is still a month-to-month thing.

That said, stability has brought with it a greater sense that the worst is behind us and things will get better. Independent retailers are slowly becoming more optimistic. But they still haven’t seen the money.

Independent retail will lag the overall recovery. Most independent retailers are in categories that are highly discretionary. They were the first to get hit when things turned sour, and will be the last to feel the effects of any recovery.

In any event, even the most optimistic independent retailer feels that returning to prior revenue levels will be a long, hard slog. There remain significant headwinds, from unemployment levels that appear to be less cyclical than structural, to continued limits on credit availability. Regardless of their specific outlook, most independent retailers are proceeding with great caution and prudence.

Craig Sundstrom
Guest
11 years 1 month ago

My, my, what a bunch of Gloomy Gusses! (With the one notable exception of our court jester); so to sum up: the Recession is over to almost everybody except for the people who actually declare it over, so no it isn’t over yet…that we know of, anyway…so there’s something for everyone. And of course, just because the economy is recovering doesn’t mean it has recovered; technically speaking, 1934 wasn’t a recession year either.

David Livingston
Guest
11 years 1 month ago
I don’t get the negativity. Sure the stock market and housing values are not at their all-time high and unemployment is not at its all-time low. But the markets are doing pretty well and much higher than 5 to 10 years ago. Many people have refinanced their mortgages or just quit paying, putting hundreds of spendable dollars back into their pockets. You can buy a home relatively cheap and get a rock bottom mortgage rate. The prime rate is near zero and my clients can borrow money super cheap. Some of my clients are negotiating free rent with landlords for new stores. Sales may be down but profits seem to be up for my clients. We are watching weak retailers drop like flies and this opens up new opportunities to serve new customers. Unemployment is a little high but as far as I’m concerned, it’s just a lifestyle choice financed by the government. Eventually people will be motivated to move to where the work is. Wal-Mart and Aldi can’t get stores built fast enough. Target… Read more »
Tony Orlando
Guest
11 years 1 month ago

There is no recovery, and it will get much worse until the folks in Washington get a clue. You cannot spend your way out of a recession, and with 2011 coming (new taxes, and health care), small business is in big trouble. I don’t know how any educated person can believe things are getting better, because we now have a society in which almost half the people pay no fed. taxes, and about 20% of the population have no intentions of finding work, as long as the entitlements keep coming. This is not the America my father taught me about, and I’m concerned for my kids, with the crushing debt they’ll incur.

Just my thoughts, but who knows, maybe the 2010 elections will wake up somebody in D.C. (I doubt it.)

cindy williams
Guest
cindy williams
11 years 28 days ago

After attending the High Point furniture market this month and seeing increased foot traffic, I was encouraged. Most manufacturers I talked to have seen a 25-30% increase in showroom traffic than at this time last year. More retailers are buying.

This is all good news. Mattresses seem to be doing well and this is probably a result of pent-up demand. Price points are generally slightly lower, although super high end is selling well. Overall, a much more optimistic outlook over last year.

John Crossman
Guest
John Crossman
11 years 17 days ago

We are finally seeing lenders foreclose on shopping centers and believe this is just the beginning. While this seems like bad news, we actually see it as good news. Typically, after foreclosure, the center is the properly valued with appropriate rental rates. This makes the centers affordable to retailers and encourages expansion. These are signs that we are on the long road to recovery.

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