Your morning retail report

I'm up in my mother's hometown for the holidays, a sleepy country village in western New York. Due to a sudden surplus of holiday iPods, we went to the outlet mall yesterday to pick out something else for my sister.

The place was eerily abandoned. Even Harry and David, which is normally crammed with shoppers stocking up for holiday parties, had more staff than shoppers.

The housewares stores seemed the most deserted, which makes sense: it's easier to make one's plates go another year than the ratty old sweater with a hole in it. I secured some fantastic bargains at the Mikasa store closing sale--four champagne flutes for $4, that sort of thing. I suspect anyone who retails china or pots is having a very grim Christmas indeed.

Western New York is already economically depressed of course, so your results may vary . . . but a friend found the same phenomenon in the Ohio malls, right down to the underemployed store clerks stalking her through the aisles. And nationally, it's been clear for a while that this Christmas season was bringing in some aggressive pricing policies; even Bose, which makes it a point of corporate policy to never discount, is "discounting" by offering freebies with its products.

I've been waiting for a recession to hit for over a year now, so perhaps I'm just suffering from confirmation bias, but I think it's pretty clear that consumers are massively retrenching. Since many retailers don't swing into profit until the fourth quarter, that sector, at least, probably qualifies for the r-word. As for the rest of us, I guess we'll have to see. But I'd say that P(Democrats win 2008 election) is solidly in the 95%+ range.

Comments

Ohio, along with Michigan, has been in long-term decline much like western New York, so I don't think that's a terribly representative example either.

I also went shopping yesterday, only to find a completely full Target parking lot, fully staffed registers and customer-service lines (all busy), and people everywhere. And you couldn't have paid me to go within three miles of the upscale mall.

Of course, Houston is idiosyncratic also, but perhaps that is the larger point. Much like the EU, the United States is more a conglomeration of regional economies than it is a unified one. (Take the housing market for example--nationwide the median price is $250,000, and most people saw neither the run-up nor the bust.) So, until we get some national data (which, for all the doomsaying, still looks okay so far), I don't see how we can say much of anything based on metro, or even regional, phenomena.

That's not to say that we won't have a recession...rather that right now I don't think we have a clue either way.

Posted by Amber | December 24, 2007 11:35 AM

Megan,

If you really believe that than you can put your money where your mouth is. The betting markets put the probability of a democratic 2008 win at 60%. Will you really leave that money on the table? Or were you exaggerating?

Posted by A.O. | December 24, 2007 11:36 AM

Meghan,

"massively retrenching" I don't know if I would say that. Certain industries are having trouble banking, real estate, etc. Others, oil, oil services, commodites, high value add exports (machine tools, commerical aircraft, high end appliances, software and high end hardware exports) are going gang busters. The company I work for had a limited presence in the UK - but with the $2 to the pound they are hiring aggresively to support all the new sales to the UK.

Posted by jmo | December 24, 2007 11:48 AM

Here in SE PA, store parking lots--for malls, outlet malls, strip malls--and the businesses themselves have been jammed full for weeks. I haven't been able to walk right up to a register (my usual experience everywhere but the grocery store) to check out since before Thanksgiving. This includes several trips to houseware stores.

Confirmation bias is right....

Posted by BEB | December 24, 2007 11:55 AM

And, of course, there's online shopping; I spent thousands of dollars on presents without going near a parking lot of any sort.

Posted by David M. Nieporent | December 24, 2007 12:06 PM

Well, the November data showed consumer spending as having increased at the highest rate in two years, so it may not be so clear that a retrenchment is occurring.

Posted by Dr. Manhattan | December 24, 2007 1:43 PM

I've been waiting for a recession to hit for over a year now, so perhaps I'm just suffering from confirmation bias, but I think it's pretty clear that consumers are massively retrenching.-MM

Megan McArdle is often wrong but never in doubt. It's admirable, really, that someone whose forecasting record is spotty at best still makes confident predictions about consumers "massively retrenching." Our fearless blogger reminds me of the Miami Dolphins who, despite getting thrashed on a regular basis, still went out against New England thinking they could win...

I think it very unlikely that there will be anything like a massive retrenchment. Consumer spending tends to be pretty stable over time. It's business investment that tends to be volatile.

Regardless, I offer my own prediction, and we'll see who's right:

"If there is a recession next year it will be mild. The natural dynamism of the economy combined with some monetary (and possibly fiscal) stimulus will revive the economy and bring another cycle of robust growth in short order."-rwe

Posted by rwe | December 24, 2007 2:44 PM

I'm just an ignorant foreigner, but I'd have guessed that the D's are bound to win. I rather hope that they pick that nicely spoken young man Senator Baghdad Osama, rather than have yet another dalliance with that loathsome Clinton couple.

Posted by dearieme | December 24, 2007 3:16 PM

I'm not predicting a second great depression; just a recession. Whether it's mild or not, I predict that a recession dooms the Republicans.

Posted by Megan McArdle | December 24, 2007 3:27 PM

(Democrats win 2008 election) is solidly in the 95%+ range.

Not with an unelectable candidate, it ain't.

Posted by RMc | December 24, 2007 3:39 PM

Free flat screens in January? Bring it on!

Posted by JohnF | December 24, 2007 3:46 PM

I think the sight of undercrowded malls may be more a sign that malls are faltering rather than that retail in general is going downhill.

I made the mistake of stopping at a Target last Saturday, and it was insanely busy. I live near a mall, and also observed a ton of traffic there - however, two of the anchor stores in that mall - Sears and JCPenny - are towards the low end of the retail spectrum.

My guess is that people are feeling the pinch enough to shop at discounters, but not enough not to shop at all. Online shopping has also probably taken some of the higher-end business. Malls in general have been feeling the pinch lately, as customers move to discounters and big-box stores for lower prices, easier access, and more selection.

Posted by Mad Anthony | December 24, 2007 4:27 PM

"My guess is that people are feeling the pinch enough to shop at discounters, but not enough not to shop at all."-- Mad Anthony

MA makes a couple of good points, including the quoted. S. Claus is usually the last on the list to take the arrow of 'belt-tightening'. Though, one should remember that 'retailing', distilled, is always a physical point of presence arbitrage.

Further, it may be a gift to cogitate on:

"It is important to keep in mind that what you are privileged to be witnessing from a ringside seat is a battle royale of historic proportions between the Central Banks of the world and the deflationary pressures being caused by a lock up of the financial system due to lending constraints. The CB’s are fighting with the one weapon they have in their arsenal – they are creating money out of nothing and literally attempting to give it away in the hope that they can induce banks to lend instead of hoarding cash against future losses. Whether their strategy will ultimately be successful remains to be seen but regardless of that outcome one thing is for certain - they have set in motion a process that cannot practically be reversed for once this liquidity has been injected into the system, taking it out will produce the similar effect as withdrawing a crack addict from his daily fix. It will send the global economy into convulsions.

Gold has sniffed out this gambit and has not been duped like so many of the easily led investment community of today. Make no mistake about it – the gambit that the CB’s of the world, and in particular the West, have embarked upon is nothing less than the systematic devaluation of their own currencies through the insidious process of inflation. “How can that be”, one might be tempted to say. “We can see the daily Forex prints of the major currencies and we do not see any such effects”. True enough, for in a world of floating currencies when every nation on the planet is ramping up their money supply at dizzying rates, it is difficult to get a true sense of how Central Bank actions are debauching their currencies for after all, we are only measuring one debauched unit of exchange against another equally debauched unit of exchange with the value of both units being set by which one is being “less debauched” than the other. But the true picture emerges when these currencies are measured against a store of value which cannot be counterfeited or mass produced in quantity by Ivory-tower, cloistered monetary monks – that store of value is gold, the ultimate in currencies and the supreme store of wealth for more than 5,000 years of recorded human history.

Take a look at the following charts of what have been considered until recently some of the “stronger currencies” and look at their charts when compared to gold and you will see firsthand the destruction inherent in Central Bank activity in other corners of the world besides the US. Remember this when you hear some analyst trash gold and come out with a doomsday scenario for the yellow metal. Also keep in mind that this is why the yellow metal is hated, despised and cursed by so many modern Central Banks and their acolytes.

Dan
http://www.jsmineset.com/

Posted by MEH | December 24, 2007 7:30 PM

It could also be that you can't start hawking Christmas sales in, say, July, and expect people to be packing the malls/stores six months later.

How much shopping can really be necessary the week before the big dance when peeps make it a badge of honor to claim, "I've got all my Christmas shopping done" ... the day after Thanksgiving?

Posted by Dan J. | December 24, 2007 7:31 PM

If a recession is in the offing, why isn't the stock market predicting it? There's never been a recession in my lifetime that the stock market didn't predict. Or is McArdle telling us to go short?

Posted by y81 | December 24, 2007 9:13 PM

MA has nailed it. I went to one store for one gift. Everything else was done online.

This is just like the MSM predicting the recession. Newspapers and TV are experiencing declining advertising revenue. They have been experiencing a recession for years. Other people eating your lunch is not a recession.

Revised 3Q growth is 4.9% and you're pitching recession? We have a string of zero quarters of negative economic growth and you're predicting recession?

Well Cassandra, just keep pitching doom and gloom, because something bad will happen in your lifetime, or you'll die disappointed. Dismal science, indeed.

Posted by MarkD | December 24, 2007 9:34 PM

y81,

this chart is a little old, but the trend is still intact..
http://www.gold-eagle.com/editorials_05/tanashian091806.html

the nominal 'dollar' Dow may not be telling the story you think it is..

Posted by MEH | December 24, 2007 9:55 PM

I also strongly suspect that the Christmas slowdown is regional. Here in Eastern New York, the shopping has been just like usual: very crowded at the malls, other areas heavy at peak times. I shopped at Target on Christmas Eve, and made it a point to get there early so I could avoid the crush. It's not a record-breaking season, but it's not conspicuously quiet, either.

I don't know where in Western New York Megan is, but some areas have been in freefall for years. A relative's house in a Rochester suburb lost something like 40% of its value between 2000 and 2005--and this during a national real-estate bubble. The area probably isn't typical.

Posted by Dictyranger | December 25, 2007 8:39 AM

I don't know what to say to someone who goes from predicting a "massive retrechment" to insisting "I'm not predicting a second great depression; just a recession. Whether it's mild or not..." How does a massive consumer retrenchment translate into anything short of a severe recession?

"Who of us is Oedipus here? Who the Sphinx? It is a rendezvous, it seems, of questions and question marks."

Nor do I know what to say when someone goes from arguing that markets are perfectly efficient to claiming that the stock market is not a good indicator of future profits or the economic outlook. There is such a muddle of inconsistencies here that it borders on total incoherence.

But maybe Megan is making a subtler philosophical point. Perhaps, like Nietzsche and Heraclitus before him, she is mounting a deep philosophical attack on the principle of non-contradiction... Aye, or maybe she's just confused.

Posted by rwe | December 25, 2007 9:00 AM

But I'd say that P(Democrats win 2008 election) is solidly in the 95%+ range.

That's just a preposterous figure. I'm sure Megan studied some probability at Chicago GSB, but she seems to have forgotten what she learned. Many economists have been making predicitions about the chance of recession. Marty Feldstein and Larry Summers have been at the higher end, estimating about a 50% chance.

Let's assume: P(Recession) = .5

Lat's further assume (liberally):

P(Democrats win|Recession) = .9

P(Democrats win|No Recession) = .5

In that case:

P(Democrats Win) = .5 x .9 + .5 x .5 = .7

So the highest reasonable estimate is 70%. My own belief is that the best estimate is something more like the tradesports figure given above by A. O.--60% (Actually, I would say maybe 55%, but that's close enough). Regardless, the main point is that the 95% figure is just preposterous. No sensible political analyst would make so wild an estimate.

Posted by rwe | December 25, 2007 10:20 AM

Lots of people buying crap here in Manhattan. But they all speak German or French or Italian or British.

I suppose the degree to which stores in Manhattan are stuffed with shoppers is not a good proxy for the country's economy as a whole, given (1) the preponderance of people with large disposable incomes living here and (2) the preponderance of euro-tourists feasting at the teat of a cheap dollar.

Posted by Dave | December 25, 2007 11:46 AM

Preliminary numbers have holiday sales up 3.6%. Not super-stupendous, but pretty good and at the low-end of expectations.

People with accents buying crap in Manhattan is what is technically known as "exports" (as are their hotel rooms) and are generally considered one of the benefits of a weak dollar.

Posted by David Cohen | December 25, 2007 1:30 PM

MEH, I'd be intrigued if you could demonstrate that the value of the Dow Jones in gold had some predictive value for the real economy, but I've never heard that, and I doubt that it does. But I guess you're telling me that it does and that I should be short stocks in a major way?

Posted by y81 | December 25, 2007 2:44 PM

y81,

this individual put together an interesting long-term Dow/Gold chart:
http://home.earthlink.net/~intelligentbear/com-dow-au.htm

as you know, in any given market, there are always longs, and shorts, to be traded..

personally, I'm not long general 'equities', but, rather, think the Commodities bull will be with us for quite awhile longer..

also, I think it's useful/necessary, in this fiat regime, to gauge value by many yardsticks, at least more than one (the U$D)..

Posted by MEH | December 25, 2007 3:16 PM

MEH, I should clarify, you would have to show that the Dow Jones value measured in gold is a better predictor than the Dow Jones value measured in dollars.

And quite apart from individual stocks, one can certainly short the S&P 500, and one should, if one is confident that a recession is coming, because the market has never failed to anticipate a recession, though it has anticipated some that didn't come.

Posted by y81 | December 25, 2007 7:37 PM

As the founder & CEO of an ecommerce business we found that overall sales volume was up double-digits, however, AOV (Average Order Value) was down. Translating into a flat season overall. Deep discounting and free shipping offers were much more prevalent and I don't foresee any changes on this front in the near future. This may have more to do with the nature of business these days than economic reasons.

I too was concerned when I visited my local mall a few Saturday's before Christmas and it was empty. I asked a clerk at the sporting goods store if it was like this all week and she stated that it's been crazy busy. So, I just got lucky and breezed in and out of the stores.

I would love to know how the holiday season would’ve been for my company and for retailers in general, if gas prices were below $1.50. I’m pretty sure we’d be a much happier bunch.

In regards to a Democrat winning in 2008, I think 95% is way too high. You are over estimating the brain power of our country. Remember, we elected George Bush twice.

In closing, shop www.DelightfulDeliveries.com for Gift Baskets & Gourmet Gifts. And don't forget to use you brain when you vote.

Posted by Gifts | December 25, 2007 10:12 PM

y81,

I was, really, only pointing out that the nominal Dow may not be telling all that needs to be heard.

And, as far as the S&P 500 is concerned, remember it is a weighted index, see: http://www.indexarb.com/indexComponentWtsSP500.html

large gains in AAPL,MO,& GOOG can go a long way toward masking, otherwise, weak performance--to say nothing of XOM..

so, I find, from either the long, or short, side the 'noise' found in indexes as large as the SPX tends towards greater inefficiencies..

Posted by MEH | December 25, 2007 10:42 PM

heh, the funny thing about this recession is that it'll get blamed on whoever is elected next fall... they ALWAYS are. The thing about all of this sports fans, is that the real numbers won't be known for a while, so you may be shootin' fish in a barrel, and missing the barrel. Massive Retrenchment may be an overstatement, but consumer caution, certainly isn't. Fuel prices seem to have reached a new higher plateau, so no-one is expecting them to fall back. The average person has dialed in ther budget for that, but since they are not expecting it to change, they won't spend that money elsewhere on consumer goods. Since mortgages are going back to being more difficult to get, that will ripple. If you don't buy a house, you don't redecorate one, and so that sector is sluggish...

and so on and so forth. It may take the macro level a while to catch up, but I think the micro level [the individual] is already holding the cards closer to their vest. This is why I think a fiscal concervative might be able to slide in to the whitehouse, if they are canny about how they couch the terms. The average joe-in-peoria may not be interested in raising taxes to provide new social services which Hilly and Obama are touting. If things are as bright as some commenters have said, I doubt that will take away the murk of who is interesting in this election. With congress being worthless, whoever wins is going to be behind. You could prolly start a pretty good conspiracy theory by wondering if the GOP lets the dems win, just to watch them crash and burn, but we know politicians want power too much for that... like vogons, or summat...

Posted by SwissArmyD | December 26, 2007 4:34 AM

I think it's safe to say that there won't be a recession; Paul Krugman is predicting one. He has predicted something like 10 of the last zero recessions.

Posted by David Nieporent | December 26, 2007 9:52 AM

Ohio, along with Michigan, has been in long-term decline much like western New York, so I don't think that's a terribly representative example either.

Here in a non-declining bit of Michigan (Ann Arbor), the holiday traffic and parking lots were as unpleasantly packed as they are every year. The Whole Foods and Best Buy parking lots were particularly awful. And I don't *think* many of the shoppers were wealthy bargain-hunters from overseas.

I wonder, BTW, when (if) all those pound and euro-rich foreigners are going to discover the bargain beach front property here (which, by air, is closer to the UK and northern Europe than much of the U.S. east coast).

Interesting times.

Posted by Slocum | December 26, 2007 4:27 PM

Well, golly, but it seems to me that whether a recession leads to a Democratic or Republican victory is based on what forces or reasons they blame for that recession.

The price of oil? Probably more people blame increased foreign competition than blame the war in Iraq.

Too much deficit spending? Equal parts Democrat and Republican, especially since Democrats are A) the party of big spenders and B) have been in control for 2 years.

Housing price woes can't hurt the GOP too much because the biggest tumbles have been in solid Blue states.

In addition, if a recession, as it will do, leads to increased job competition, then anyone considered lax on immigration will suffer.

A recession may happen. But this one is as likely to hurt the Democrats as the Republicans, because there's a lot of long-term anxiety wrapped up in it.

Posted by Bill | December 28, 2007 1:05 PM

http://Good.com

Posted by Good | April 16, 2008 10:25 AM

http://Good.com

Posted by Good | April 16, 2008 10:26 AM

http://Good.com

Posted by Good | April 16, 2008 10:27 AM