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Why Has the Press Ignored Retailers’ Crappy Black Fridays, as Experts Warn of Coming Bankruptcies?

Summary:
You can try to blame the business press non- and mis-reporting of sickly Black Friday and underwhelming Cyber Monday sales on Omicron eating the news, but that won’t get your very far. The sort of gumshoe reporters that once covered the retail sector would not be pressed into pandemic coverage. In fact, the slow retrenchment of American consumers has gone largely unmentioned. We are supposed to believe that they really did shop early as they were encouraged to do to get in front of supply chain failures. But as we’ll see below, spending on goods had fallen in the third quarter and retail inventories grew this quarter, which is the opposite of what you would observe if consumers were making purchases as retailers were having trouble keeping items in stock. Indeed, the press has underplayed

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You can try to blame the business press non- and mis-reporting of sickly Black Friday and underwhelming Cyber Monday sales on Omicron eating the news, but that won’t get your very far. The sort of gumshoe reporters that once covered the retail sector would not be pressed into pandemic coverage.

In fact, the slow retrenchment of American consumers has gone largely unmentioned. We are supposed to believe that they really did shop early as they were encouraged to do to get in front of supply chain failures. But as we’ll see below, spending on goods had fallen in the third quarter and retail inventories grew this quarter, which is the opposite of what you would observe if consumers were making purchases as retailers were having trouble keeping items in stock.

Indeed, the press has underplayed the recessionary warnings. From a post in late October:

Two series – from The Conference Board on business conditions, employment and income six months hence, and from the University of Michigan on the financial situation in a year and business conditions a year and five years hence – tell the same story: sentiment peaked in spring or early summer. And it has been falling precipitously since (Blanchflower and Bryson 2021a). This is true for the US as a whole and for the eight largest states for which The Conference Board collect data.

Why does this matter? Well, the rate of decline in these sentiment indices is of the same magnitude we saw back in 2007, before the Great Recession (Blanchflower and Bryson 2021b,c). We call it the 10-point rule. When the indices drop by at least 10 points, this is an early warning signal for a recession.

We test this proposition for the US over the period 1978 to September 2021 and show that consumer expectations about future economic trends are highly predictive of economic downturns 6-18 months ahead, thus providing an early-warning system for the economy (Blanchflower and Bryson 2021a).

Table 1 The Conference Board expectations data in the eight biggest US states, 2007 and 2021

It is not hard to infer that consumer confidence was propped up by government intervention and spending, and their withdrawal while Covid is still very much out and about has produced a great deal more caution.

And from CNBC a few days later, at the end of October:

Spending for goods tumbled 9.2%, spurred by a 26.2% plunge in expenditures on longer-lasting goods like appliances and autos, while services spending increased 7.9%, a reduction from the 11.5% pace in Q2.

The downshift came amid a 0.7% decline in disposable personal income, which fell 25.7% in Q2 amid the end of government stimulus payments. The personal saving rate declined to 8.9% from 10.5%.

Neither Lambert nor I recall seeing any reports on changes in same-store sales across major retail outlets, which was once a staple of business reporting. Neither of us recall this year seeing any major media reports of how dismal this Black Friday was either. Even worse, the mentions of the shopping day talked up how much store traffic rose…..when that turned out to be very much disconnected from revenues.

Kevin W sent this Tweetstorm:

I don’t know about crash, but the Fed planning to tighten as consumers are retrenching is misguided. Remember the Fed mistakenly thinks it can stimulate growth when all it can stimulate is speculation in assets, but it can choke activity. It had all these years since the Taper Tantrum to try to take some air very slowly out of financial markets…and acts as if it has finally gotten the nerve. We’ll see how long its resolve holds.

For further confirmation and more detail on the sorry state of retail, van Metre below presents data. For instance, he shows at 8:58 that inventory levels rose even though the media reported them as falling.

And don’t assume Cyber Monday came to the rescue. Those sales were marginally down this year versus last year, which given inflation, means a larger decline in real terms.

So the reporting on the state of retails conforms with (crap) Covid reporting: facts are being omitted or fudged to do everything possible to preserve year end spending. We’ll see how much can be shoved under the rug before the great unwashed public notices that it is not just lumpy but also moving.

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