More Signs Consumption Isn’t Going To Rebound
There are fresh signs of the severe lack of consumption that will continue to cripple the U.S. economy for years. While the fresh retail numbers might make you think that consumption is getting better, remove programs like Cash for Clunkers and the picture is murky at best.
In the news today are two interesting consumer related stories:
Best Buy’s Terrible Earnings
Best Buy (BBY) reported a miss in earnings this morning despite a beat on the revenue side of things. If a company beats on revenue and misses bad on earnings, the clear cause is horrific margins. Best Buy is obviously slashing prices to keep their products moving. This is not a healthy sign of a retailer. Even as their competition folds (Circuit City), they are having to slash margins to sell goods. Looks like Best Buy’s main competitors these days will be the likes of Wal-Mart.
Blockbuster – Still Breathing?
Amazing, this company still actually exists. Maybe not for long. They announced today that they will be shutting as many as 960 stores. Netflix (NFLX) and Redbox are two main reasons for Blockbusters (BBI) struggles. I’ve never been a Netflix subscriber, but I love redbox. It’s really amazing.
Like most retail situations, consumers are trading down in order to save money. I rent movies for $1 by using redbox and its incredibly convenient because I can return the DVD to any redbox location (and there are locations all over).
While I’m not referring to any specific restaurant, you can see restaurant promotions all over the place if you pay attention. Whether it’s a $5 menu at local restaurants or the 2 meals for $20 type deals that are popping up everywhere, it’s really amazing at how many deals are being thrown at consumers in an attempt to get people to dine out.
Consumption is low and it’s going to remain low, no matter how many government progams (and there will be more, many more) are thrown at the “problem”.
Why Do I Always Talk About Consumption?
I know I talk about consumption a lot. The reason is because consumption is the most important factor to our economy because it is approximately 70% of our GDP. We’ve been a consumption driven economy over the years and that does not bode well for the current situation.
While the drop in consumption is good for individuals, it’s terrible for our economy because of how the economy is structured. Sooner or later, I believe the stock market will correct (probably severely) when investors realize that consumption is not bouncing back.