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Every Friday, I post a small insight into running Curio City and/or Blue Hills Editorial Services. My most recent posts are directly below. You can also start with the first post, or use the subject labels to the right to home in on particular topics. Feel free to comment on anything that interests you.
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Friday, August 27, 2010

Economies Great and Small

A nice little rally at the end of August couldn’t save a weak month. Curio City’s latest numbers are worrisome inasmuch as they extend and intensify July’s little slowdown and reflect a faltering national economy.

August isn’t especially important. The dollars behind those percentages are few enough that this could be meaningless…or it could presage a serious turn for the worse. Since gloom always outsells sunshine and lollipops, that’s my jumping-off point for today’s long economic lament. First, though, my numbers:

Total income: -6.3%
Total COGS: -3.7%
Payroll: +42.4%
Net Income (Profit): -39.5%

Year to Date:

Total income: +30.4%
Total COGS: +45.6%
Payroll: +41.1%
Net Income (Profit): -51.7%

Shoppers are still placing a healthy 3-5 orders per day, but too many of them are only spending $10 or $15. Four $40 sales make for a decent day; four $10 sales…well, I’m never ungrateful for any order. But with 20 cents on the dollar going into my paycheck, I only pocket eight bucks.

Interesting tidbit: Most of this month’s profit shortfall came from my Venezuelan fraudster and from collecting less in shipping fees after I decided to absorb the USPS rate hike rather than pass it along. (Actually, “decided” is a stretch; I’m still shipping Priority packages at Parcel Post rates because I can’t find the interface text to add transit times to the pulldown list as described in my Comment on the linked post.)

Last August the economy was rising from the dead as life-giving federal stimulus money began to flow. This year it’s wilting again as the funds slowly run dry. The stimulus was too small and unfocused to kick-start self-sustaining growth. We elected Obama into a Depression-scale moment. We expected an FDR-scale effort. We needed a centralized 1930s-style WPA-inspired jobs program centered on public works. Instead we got tens of thousands of uncoordinated local projects scattered around by political clout. The COBRA subsidy and unemployment insurance extensions unquestionably saved Anne and I from ruin, and the Congressional Budget Office says that stimulus spending saved or created up to 3.3 million jobs, increased GDP by as much as 4.2%, and shaved 1.8% off the unemployment rate. It clearly staved off a worse disaster, but it wasn’t enough to restore economic momentum.

States recently got $26 billion to retain teachers, municipal workers, and other public employees. While keeping hundreds of thousands of those folks employed will help to forestall another crash, that won’t stimulate any new growth, either…and most of those surplus workers are only getting a year’s reprieve anyway unless state revenues improve dramatically. With Washington currently paralyzed by elections, the economy’s on its own until after November.

In light of July’s historic plunge in housing sales, I'm withdrawing my prediction of boom times. I had believed that the stimulus spending would coincide with and reinforce the business cycle’s natural upswing. I underestimated the economic damage that eight years of misrule allowed. The business cycle has a flat tire and nobody knows how to patch it.

Ironically, the economy is doing better here in Massachusetts. We’ve added 60,000 jobs in the past six months and are outpacing national economic growth. That’s ironic because Curio City does very little business in MA, where I’m compelled to collect sales tax.

There are no arrows left in the government quiver. The Fed can’t cut interest rates below zero and cheap money isn’t encouraging borrowing. Congress has already spent $814 billion (over 10 years) on Keynesian pump priming and debt anxiety won't permit much more of that. Tax rates are already too low to pay for existing programs, and the political willpower to raise them is flagging in the face of November elections. If it can’t cut interest rates, is afraid to print more money, can’t afford to cut taxes, and lacks the willpower to raise them, what’s a government to do? I suppose Obama could lead a press entourage to Walmart and buy socks.

Corporate America is racking up record profits and building impressive cash stockpiles as the biggest companies get by just fine without all those damned employees, thank you very much. Business-to-business activity is strong. International commerce is strong. How, then, do you persuade corporations to invest some of their trillions in new employees? Republicans will undoubtedly trot out the old tax-cut shibboleth. But tax cuts are only stimulative when taxes are too high to begin with – and rates are already at historic lows. Democrats would say – what? I haven’t heard them say anything convincing about jobs. More Keynesian spending? More consumer subsidies? Those work while they last, but don't seem to have any lasting impact except debt.

Corporations are not charities or agents of public policy. They’ll hire when they can’t squeeze enough productivity out of their beleaguered workforce to meet demand, and they need confidence that the demand will be sustained. Meanwhile, they are content to bide their time and build up cash.

Consumers, racked by years of high unemployment, falling housing values, and grim forecasts for more of the same, are not consuming. But with 90% of the labor force employed, why do the foundering 10% exert such a disproportionate drag? Because consumer psychology drives consumption, and consumption drives 70% of the economy. Unemployment may “only” be 10%, but the 25% of households that have a friend or family member out of work are afraid. That fear is throttling spending and holding us back. More than 60% of the respondents to this Boston Globe poll believe that we’re in for “another painful, prolonged downturn”. And this is in a state that’s faring better than average. When the masses expect and brace for hard times, we get hard times.

Ah, but Q4 is drawing near. The glorious fourth quarter…retail’s be-all and end-all, when we make fully half of our annual sales. A ray of hope. Will shoppers let the good times roll for Greedfest this year, or will they be stingy again?

American consumers have been binging since the Reagan administration; the current generation of young adults is more materialistic and impulsive than any that came before. Five years ago it looked like we'd go on consuming forever. Curio City depends upon people buying stuff they don’t need, and I still believe that their lifetime habit of indulging their wants will return. The big question is when, not if, their enthusiasm for accumulating stuff will overturn their fear.

It comes down to you, shoppers. You hold the power to kick-start the economy or drag it back into the swamp. Government won’t save you. Corporations are waiting for your cue. We have to rescue ourselves. Why not buy something from Curio City right now, while you’re drunk on your own power? Christmas is almost here. Start shopping now. Pick up something fun for yourself. Uncle Sam needs you!

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