Shop Talk

Retailers, consumers and prices

Lessons from the 2001 recession

June 13, 2008

The U.S. government is currently putting $100 billion into consumers’ hands in the form of tax rebates, hoping the fresh cash will stave off a recession.

It’s a plan similar to the once the government followed in 2001, except at that point, the economy was already in a recession.

Back then, the National Bureau of Economic Research said the U.S.  economy entered a recession in March 2001.wmt-sign.jpg To get the economy out of its funk, the government passed a stimulus package and mailed out rebate checks over a ten-week period from late July to the end of September 2001, according to research conducted by Thomson Reuters.

When looking at the monthly year-over-year changes, U.S. retail sales started slumping in the beginning of 2001 and reached their lowest level in September 2001, according to the research report. The Thomson Reuters Same Store Sales Index registered a rise of just 0.8 percent in September 2001, but then began to bounce back once the rebate checks were mailed out, with October notching a 1.6 percent gain.

“When comparing the sectors within our retail universe, we find that the discount sector performed the best during the 2001 recession and remained within the 3 percent - 6 percent growth range,” the Thomson Reuters report states. “It registered its strongest same store sales result ever of 9.5 percent in February 2002.”

The report said similar trends are being repeated now as middle class consumers cut back on spending and head to discount stores.

“In 2001, Wal-Mart beat Target’s same store sales results 11 out of 12 months. Today, we’re witnessing a similar trend as Wal-Mart has smashed Target’s comps over the last six months,” the report stated.

During the 2001 economic slowdown, the apparel sector performed the worst and posted its weakest comp ever of -9.5 percent in September 2001, the research shows. It also said the teen apparel group and department stores underperformed and posted sluggish comps during the period leading up to September 2001, but were able to bounce back shortly after.

“If past behavior is a good indicator of future behavior, we are likely to continue to see an increase in consumer spending in the short-term while the 2008 rebate checks are distributed,” the report states. “This in return could help improve the overall economy since consumer spending accounts for about 2/3 of GDP. The discount group is expected to post a 3.1 percent comp, but analysts continue to look for an even stronger 3.5 percent result excluding Wal-Mart.”

(Photo: Reuters)

Comments

Gordon Brown, his government, opposition politicians and Whitehall Mandarins are all to blame for why the UK economy is not fit-for-purpose in the 21st century. They have all based their economic theories over the past 30-years on the ‘service industry’ phenomena that is highly susceptible to a global turndown unlike to a lesser extent, the manufacturing/industrial sector. Unfortunately now, the banks will not support that part of our economy, which has the propensity to weather a recession. They never have done as service industries have always come first and where our financial institutions have been progressively programmed and brainwashed in this way. Indeed, the banks do not understand also that only by having a high-tech manufacturing sector can any nation survive in the long-term in the 21st century. In this respect if they need advice, one has only to look at China for a comparison. With in excess of US$1.5 trillion in foreign reserves now that are increasing at over US$30 million a day anyone with any financial intelligence should understand this quite clearly and where manufacturing is king. Unfortunately our astute financial masters do not. No recession in China I can tell you, either now or in the future. The reason, the Chinese are the greatest savers in the world at 40% of all income earned and therefore in relative terms, recession proof. Indeed the Chinese economy has been predominantly built upon home savings and not inward investment as many would like us too believe. Therefore when will the penny drop in this country I ask and when will our governments and financial institutions start to understand that only through the principal support for high-tech industries will Britain flourish economically again. For this is the only area of economics that will count in this century I can tell you.Therefore it will not be a change in political parties that will transform our economic fortunes, but a change in the way in which people in high places think. That is where it all goes wrong as it is certainly doing today and will do for many years to come.Dr David HillWorld Innovation Foundation CharityBern, SwitzerlandCharity No. CH-035.7.035.277-9

 

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