Coming to Terms with Economic Realities

Thursday, economists and others who believe the seemingly drug-induced pseudo-reality spewed out each month by various government agencies finally learned what visitors to Financial Armageddon and a select group of other individuals have known for many months: the economy is heading south, most likely in a big way.

According to a Reuters report, "Economy Contracts as Consumers Retreat," the U.S. economy "suffered its sharpest contraction in seven years in the third quarter as consumers cut spending and businesses reduced investment at the onset of what may be a severe and long-lasting recession."

Reuters added -- in what was probably a big surprise to TV pundits and other delusionalists who haven't quite figured out that the once unstoppable American consumer is now history -- that "consumer spending, which fuels two-thirds of U.S. economic activity, fell at a 3.1 percent rate in the third quarter -- the first drop since the closing quarter of 1991. Spending on nondurable goods -- items like food and paper products -- shrank at the sharpest rate since late 1950."

Still -- in what might be seen as an ironic twist -- I wonder if over the the next few days or so, the strategists, commentators and Bush Administration apologists who have been harping on about how good the "data" has been been up until now will suddenly change sides and start to question whether we are getting the real scoop about "the greatest story never told" from official statistics.

If that happens, it might be worthwhile -- though, in reality, probably not -- sending these lost souls links to reports about today's economy that might prevent them from completely losing their grip on reality. Below is a sample of recent stories that appear to fit the bill:

"The Wal-Mart Theft Index: How to Tell if We’re in a Depression" (Nashville Scene's Pith In the Wind blog):

While cable pundits and newspaper eggheads debate whether we’re technically in a recession, there’s an easier way to decide the issue. It’s called the Wal-Mart (WMT) Theft Index.

The nation’s largest employer and retailer is a bellwether for many things, but theft may be its greatest contribution. Due to the sheer size of its stores – coupled with chronic short-staffing and no security staff – Wal-Mart tends to be ground-zero for shoplifting.

The evidence comes from the discarded packaging found in the deeper reaches of the stores. In normal times, shoplifters will grab CDs, DVDs, and smaller electronics items, strip them of packaging in the quieter aisles, then walk through security scanners undetected.

But over the past few months, workers are discovering that even thieves are having a hard go of it during this wretched economy. “Now I'm finding lots of things like food, diapers, tampons, over-the-counter pharmacy stuff like kids cough medicine and insulin,” says one employee. “They still steal all of the other stuff, but I'm seeing more necessity items these days. Today I found that someone stole a queen-sized electric blanket and a package of condoms. Now I have the peace of mind knowing that our customers won't get cold while they're having protected sex.”

Which begs the question: Should Congress consider a stimulus package for shoplifters?

"Beauty Salons Out of Style as Clients Cut Hair Budgets" (Los Angeles Times):

To treat tresses for less, many opt for discount chains and dye-it-yourself products.

With stock portfolios in the toilet, layoffs looming everywhere and credit hard to come by, many folks are looking for places to cut back.

That includes their own heads.

Consumers are slashing their budgets by skipping visits to upscale hair salons and opting for inexpensive stylists. Some are getting haircuts less often or dyeing their own locks at home.

"I'd rather not be pampering myself right now," said Melissa Moats, a Studio City voice-over artist who decided to color her own hair with a $20 bottle from Target (TGT) rather than pay the usual $120 for a cut and color at the salon. She then went to Supercuts for a $15 trim.

Things are fine in the voice-over business right now, she said, but she figured it would be good to save. "All of us -- no matter what we do -- are looking at ways to cut back."

Beauty products behemoth Procter & Gamble Co. (PG) on Wednesday reported a 20% gain in sales of home hair coloring product Nice-n-Easy in its fiscal first quarter, and double-digit sales growth for its Head & Shoulders brand. Meanwhile, its Professional Hair Care line saw a small drop in sales.

Consumers' move toward cheaper products is showing up in the bottom lines of companies that might be expected to benefit from a trend toward penny-pinching.

Regis Corp. (RGS), which owns Cost Cutters, Supercuts and Sassoon Salon, last week posted a 30% drop in quarterly profit compared with a year ago.

Daniel Hofkin, an analyst at brokerage William Blair & Co. in Chicago, said companies such as Regis were hurting because customers weren't buying expensive products at their salons.

"People are reducing the frequency of their visits, and some people are even cutting their hair at home," Hofkin said.

Or as Regis Chief Executive Paul D. Finkelstein put it: "Consumers are cutting back and trading down, and as a result we are seeing a slowdown in spending and visitation patterns."

Hofkin predicted that consumers would continue to cut back on discretionary products: luxuries such as perfume and costly hair concoctions. That's good news for discount beauty supply stores.

"A lot of people come and buy their own color and try to do it themselves," said a manager at Kristy's Beauty Supplies & Salon in West L.A. "They're saying they'd rather do it themselves than spend the money."

Malie Jarrett, a Northridge resident who works for a pharmaceutical company, said she's been dyeing her own hair lately instead of spending $150 at a salon.

In addition to saving money, she said there's another upside: "Every three months I can change the color."

Don Carroll, owner of Dej Salon in Sherman Oaks, said he'd seen a 10% decrease in customers lately, even though he resisted raising prices in line with inflation. His clients are coming in less frequently between haircuts and highlights, even though his $60 price tag is pretty cheap by Los Angeles standards.

Down the street at Montage Hair Studio, owner Bob Martin said his stylists were doing their best to keep their customers by giving them price breaks or extra services, such as touch-ups or highlights. "It's about giving customers a little more for their money," he said.

Anne Thompson, owner of Whackos Hair Salon in Studio City, charges $25 for a haircut and said she'd had about 20 new customers in recent months. Women are coming to her because they can't afford their old salons anymore, she said.

For those worried that if the economy stays bad we'll become a nation of bad haircuts and strangely colored tresses, there is one note of hope. According to Flowbee International, sales of the Flowbee, a $69.95 vacuum-powered hair-cutting machine for do-it-yourselfers, haven't picked up noticeably of late.

Besides, there will always be people like Studio City real estate agent Stami Karakasidis. She tried a cheap stylist but felt that "she didn't have the pizazz." So she returned to her old hairdresser, who charges $75 for a cut.

"You go to look good to feel good," she said.

Penny Wise is a street-level look at how Southern Californians are stretching their dollars in a sputtering economy.

"Wall Street Jobless Try B-School, Mix Purple Hooters" (Bloomberg):

Bryan Gunderson tried to master the intricacies of structured-equity investments until he lost his job at JPMorgan Chase & Co. (JPM). Now he's learning the subtleties of Purple Hooters.

After collecting his last severance check in August and getting no offers from more than 100 resumes he sent to friends, companies and employment agencies, the 25-year-old graduate of Loyola College in Baltimore decided to go to B-school -- for bartending.

"It's come to the point where, yes, I need another job," said Gunderson, who has a bachelor's degree in finance and is looking for bartending work. "I always frequent bars, so why not be on the other side?" he said in an interview at New York Bartending School in Manhattan.

Gunderson lost his job amid a credit crisis that threatens to leave 165,000 people unemployed in New York City in the next 24 months, including 35,000 in the financial industry, according to the city's comptroller.

A growing number of out-of-work New Yorkers are turning to bartending, according to school directors. Enrollment in the American Bartending School in Manhattan climbed 53 percent from last October to 84 pupils, the most for the month in five years, director Joe Bruno said in an interview.

"This will be a huge year for us," Bruno said. "Generally, when the economy is bad we do well because people need supplementary or primary income."

Enrollment Gains

Gunderson recently graduated from the New York Bartending School, which has had an 18 percent jump in enrollment, said Tom Sisson, school director. The credit crisis and layoffs are driving the growth, said Sisson, who declined to say how many students he has.

"The increase I'm talking about, it's definitely that corporate, Wall Street, finance kind of thing," Sisson said.

The number of people working in food and beverage services in the largest U.S. city climbed 3.6 percent in September from last year to 201,800, according to state Labor Department data. Employment in securities, commodities and other financial businesses fell 7 percent to 174,700.

"A lot of people that are looking for careers in other industries seek employment in our industry," said Chuck Hunt, executive vice president of the New York State Restaurant Association.

The 40-hour course offered at New York Bartending School costs $695 and typically draws "physicians, attorneys, people in the corporate world, people who've suffered a job loss, people who are burned out and are having the so-called mid-life crisis," Sisson said.

Purple Hooters

At the final exam, students must pass a written test and mix 20 drinks in six minutes. An instructor picks the speed-test cocktails from a list of 200 that includes the Purple Hooter, made with vodka and raspberry liqueur, and the Red Devil, which contains Southern Comfort, sloe gin, amaretto, orange juice, vodka, triple sec and lime juice.

Billy Achitsaikhan, 27, says he didn't worry about finding work again when he left New York to trek through Central America in 2006. The graduate of Skidmore College in Saratoga Springs, New York, said he had joined Morgan Stanley after internships at Bear Stearns Cos. and Smith Barney Holdings Inc.

"Two years ago, there were days when I would go to Wall Street and meet up with two different headhunters and they would literally offer me more than 10 jobs apiece," Achitsaikhan said in an interview.

Since he returned to Wall Street last month and posted his resume, "no one has called me," he said. Achitsaikhan graduated from the American Bartending School on Oct. 17 and said he plans to look for bartending work.

Not Recession-Proof

The median annual income, including reported tips, for a full-time bartender in New York City was $30,540 as of May, while the median for all jobs was $42,600, the state Labor Department said. Securities, commodities and financial services sales agents' median income was $111,160. Gunderson and Achitsaikhan declined to say how much they earned in their previous positions.

Tending bar isn't recession-proof, said James Brown, a state Labor Department analyst.

Restaurants are facing the toughest environment since the 2001 terrorist attacks because of the slumping economy, record rents and an increase in food prices, Hunt said. Eateries may be more likely to hire an experienced bartender who is out of work because a restaurant closed than someone fresh out of training, he said.

"Eating establishments and drinking places tend to lose employment during downturns," Brown said. "People spend less, tourism drops, expense accounts get cut."

"Signs Of Bleak Shopping Season Abound" (Investor's Business Daily):

It looks like Santa's gift bag will be a little thinner this year.

Amid a deepening economic slump, U.S. online sales during the upcoming Christmas shopping season are expected to grow at the lowest rate ever recorded, according to a pair of recent reports.According to an Oct. 22 report by research firm eMarketer, spending online is set to rise 10.1% in the final two months of the year to $32.1 billion — about half of last year's 19.6% increase from the year before.

In another report, Forrester Research predicts year-over-year growth of 12%, vs. 21% last year.

"We had been modeling for 17% growth this year, so this is certainly much slower than what we had hoped," said Forrester analyst Sucharita Mulpuru.

E-commerce growth in the U.S. had been slowing because of the law of large numbers: As a market gets bigger, posting huge percentage increases gets harder. But this year, the sagging economy is accelerating the process, says Jeffrey Grau, a senior analyst at eMarketer.

"What we are seeing here is the economic downturn putting pressure on sales growth rates," he said.

Signs of a bleak Christmas are ominous — and everywhere.

Last week, Amazon.com (AMZN), the world's largest online retailer, posted a fourth-quarter forecast of $6.50 billion. Analysts had expected $7.05 billion in what is normally the company's strongest quarter of the year.

Retail sales overall are seen rising by only 2.2% to $470.4 billion — far below the average 10-year growth rate of 4.4%, says the National Retail Federation.

Online sales are a drop in the bucket of total retail, but it's still a better performer in dire times, says eMarketer's Grau.

"If you compare it to the estimates for retail in general, the e-commerce channel still outperforms the industry several times over," he said.

Even so, consumers are wary about spending, even online.

Nearly half of all consumers plan to buy less overall this Christmas because of the economy, the Forrester survey says. A year ago, only 20% said they would spend less.

Web retailers will likely feel the pinch, says Forrester's Mulpuru.

"That's the big story here — even the Web is being affected by this negative customer sentiment," she said.

Consumers cite high gas prices as one of the top reasons for shopping online. But consumers also indicate that free shipping is the top factor in deciding where to shop online during the holidays, according to the Forrester report.

Consumers this year plan to spend more on books, videos, music CDs and computer software as gift items purchased online.

"They are low-ticket items," Mulpuru said. "It's not going to bust anyone's budget."

Analysts say the crunch on spending could also crimp sales of high-end apparel, jewelry, airline tickets and many consumer electronics items such as high-end cell phones.

But some consumer electronics items could still wind up under the tree, says Grau, the eMarketer analyst.

"Flat-panel TVs could do well because prices are going down and the conversion to digital (TV signals) is going to be taking place in February 2009," he said.

Comments

[Smarty_Pants:]

(Eyes closed, fingers in ears)

It's NOT a recessioin. It's NOT a recession. It's NOT a recession.

2008 Oct 31 11:59 AM

[moonbat1775:]

Smarty,
For your restaurant, I suggest red beans and rice. Cheap, nutritious, and yummy if cooked right. Big Lima beans and rice are good too.
Also, you should consider a branch near the railroad truck to sell hobos cheap meals.

2008 Oct 31 05:15 PM

[moonbat1775:]

tracks, that is.

2008 Oct 31 05:16 PM

[derryl:]

Where do I apply for the hobo job?

2008 Nov 01 11:49 AM