Retailers, consumers and prices
Check out the economic cross-currents swirling around U.S. consumers, retailers and manufacturers.
So, what’s it going to be? Inflation, deflation or just a big squeeze all around?
The U.S. economy is still suffering from high unemployment and sluggish consumer spending and sentiment. On Tuesday, the Fed said it would buy more government debt in the face of the weakening recovery.
“The pace of recovery in output and employment has slowed in recent months,” the Fed said after a one-day policy meeting.
There is some concern about deflation, especially in bigger ticket items, with prices falling and cash-strapped consumers holding off on purchases expecting further price cuts, which just leads to more falling prices.
“Just when it looks like buyers were starting to come back, now they have another reason to wait,” Robert Yerex, chief economist at workforce management company Kronos, said. He pegs the chances of deflation in the United States at as much as 20 percent.
But there are also conditions that point to inflation for consumers instead, including rising costs for commodities like wheat, which may be starting to drive up the price of some products on grocery store shelves.
An analysis by J.P. Morgan showed that the price of a 31-item basket of goods at Wal-Mart rose 5.8 percent in July from June. Analysts think Wal-Mart may be pulling back from the aggressive price cuts it made earlier this year and that could lead to other grocers raising prices.
Down the road, rising costs in for cotton, freight and for labor in China could also push prices up for clothes, analysts said.
But a key question is whether consumers, who are used to receiving big discounts, willing to pay more in a weak economy.
The other question is, do consumers really watch closely enough to know when they are paying more in time to push back? Or can prices go up as long as retailers are willing to put the 50 percent off sign out there when products don’t sell?
Also in the basket:
from Raw Japan:
Japanese retailers reported mostly dismal first-half earnings results, with the industry stuck in a slump as shoppers remain reluctant to open their wallets even as the economy emerges from recession.
from Raw Japan:
Japan is back in deflation, and price falls look like gathering pace as shoppers' bargain-hunting leads stores to cut prices further to weather the worst retail slump in decades.
Retailers large and small reported hard falls in quarterly profits last week, and the few bright spots were focused on those drawing in thrifty shoppers with their cheap but well-made goods.