business news in context, analysis with attitude

Reuters reports that some experts speaking at the annual meeting of the American Economic Association seemed to be fairly pessimistic about the prospects for the coming decade, suggesting that “U.S. gross domestic product would expand less than 2 percent per year over the next 10 years. That stands in sharp contrast to the immediate aftermath of other steep economic downturns, which have usually elicited a growth surge in their wake.”

A major problem, according to the report, is that the decline of the housing market will continue to impact the wealth of many Americans: “One reason is that U.S. consumers remain heavily indebted. Consumer credit outstanding has fallen from its mid-2008 records, but still stands at some $2.5 trillion, or nearly one-fifth of total yearly spending in the U.S. economy.

“Another is that many of the country's largest banks are still largely dependent on funding from the U.S. Federal Reserve and the implicit backing of the Treasury Department.”

Meanwhile, the Wall Street Journal reports that “in the short term, recent news suggests a continuing rebound for consumers and retailers, albeit a modest one. Last week, the U.S. Labor Department reported that overall personal income rose 0.4% and wages and salaries rose 0.3%, while savings rates stayed steady at 4.5% ... Another sign that sales will pick up is that cargo volume at U.S. ports in February is expected to rise 16% from last year's level, followed by further increases in March and April,” following 30 months of steady decline.
KC's View:
The larger point made by the Journal story is that for the short term at least, consumers are going to be thinking and acting differently than they have in the recent past, with more of an eye for value...though I would suggest that “value” won’t always be seen as the lowest price. It is entirely possible - and I think likely - that educated consumers will have a broader and more sophisticated understanding of what value means, and will integrate it into lifestyle approaches that could include such things as “experiencer consumption,” as noted in yesterday’s MNB.

What makes this harder for retailers is that they no longer can simply calculate, but rather must triangulate...figuring out what categories in which they need to focus on price, and in which segment they should pay more attention to value as it is variously defined.