By Jeffrey P. Snider
It’s amazing to see how far standards have shrunk given this cycle. Because monetary policy has been so active in the past five years, including ZIRP and numerous QEs, there is a mindset settling into the mainstream commentary that this is the best that can be achieved. It’s not even a “new normal,” it’s something far more sinister in that the public is being conditioned that there is no alternative to this lame trajectory, and that they should be happy to get it.
A dynamic economic system that has vibrant features should never settle for such a systemic resetting of standards below even mediocrity. There should be no acceptance, as Janet Yellen recently proclaimed, of simply hoping GDP actually gets to 3% one of these years. That is totally unacceptable. The economy is not some victim of circumstance, idly set about by forces beyond the control of the “heroes” of Washington. The US economic system is indeed dynamic, but it is beset by the “experts” of Washington who cannot get out of its way.
The primary example recently is the holiday sales hysteria. The now-completed economic event shows both the effects of monetary policy on psychology and the exact limits of those effects. In response, as is predictable given the excuses of this cycle, the entire plane of judgment is being recast so that the 2013 Christmas shopping season falls under a more favorable light.
Even though expectations were through the roof as recently as the middle of last year, there is no accountability in the overall narrative. That the Census Bureau showed 3% combined growth for November and December has many economists confident in the rebound (an annual ritual that is for some reason never recounted in its most current iteration). However, 3% is atrocious, not something to inspire confidence. The growth rate in 2007 holiday sales, by relevant comparison, was 5%, and that was half including the first month of the Great Recession.
In 2003, during the “jobless” recovery that had only just begun to show the mania of the housing bubble, holiday sales were 5.2%. In 2000, with the dot-com bust just beginning and only a few months from official recession, holiday sales advanced 4.1%. In non-recessionary environments, such as 1999, 2004 and 2005, holiday sales growth was 9.7%, 8.4% and 7%, respectively. Only by reducing the standards and expectations of the public can we accept 3% as anything other than wholly unacceptable.
That is particularly true of businesses themselves. There is no doubt that they were caught up in the euphoria of QE3 & 4, believing that annual rite of “recovery” narrative. That the Fed began to threaten taper because the “rebound” looked sustainable only reinforced that optimism. Where is it now, if 3% is the standard of excellence in this recast economic system?
The discounts boosted overall industry sales but hurt profits at many chains, including L Brands Inc., Family Dollar Stores Inc. and teen retailer Zumiez Inc. Even retailers that reported big sales gains, like Kay Jewelers parent Signet Jewelers Ltd, were not spared.
Fewer store visits and aggressive pricing at the start of the season by big retailers like Amazon.com Inc. and Wal-Mart Stores Inc. left many chains with little choice but to offer sweeter deals. Many also had too much holiday merchandise, which was ordered in late spring when retail executives were feeling upbeat.
More’s the fool. That leaves the vast majority of economic participants, agents and observers shamed now twice – first in believing the QE-spin at the outset, and second for accepting that current economic results are acceptable, or worse, commendable.
This theme is consistent not only in the end user, consumer segment, but has developed in the business and investment sections of the economy. Reduced standards and insouciant excuses rule over business results as well. And it extends not only into every crevice of the statistically adjusted government numbers, as is obvious when viewed in a wider context, but also to individual company earnings. We have already seen Best Buy (BBY) and hhgregg (HGG) suffering the fate of belief in monetary beneficence, and the business side continues to languish in what must certainly be one of the inner layers of hell; no revenue growth on the top end, but record margins only leading to an ever-reducing growth rate in profits, augmented now only slightly in huge quantities of repurchases. If that is a robust economy, then the definition of robust must be changed along with the standards that represent it.