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?
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Check out the latest data that could help erase some inflation worries.
U.S. consumer prices rose at a slower-than-expected pace in May, despite higher gasoline costs. Also, consumer prices have fallen over the past 12 months by the most since 1950, according to new data from the Labor Department.
The Consumer Price Index edged up 0.1 percent in May after being flat in April, below market expectations for a 0.3 percent increase. Compared to the same period last year, consumer prices fell 1.3 percent, the largest decline since April 1950.
Since the management change was announced in November, ShopTalk is fairly certain that Duke has come up with a pretty long list of things to do in his first few months as CEO.
“Thanksgiving food prices are up about 6 percent compared to last year,” said Corinne Alexander, a Purdue University agricultural economist.
Alexander said grocery store prices are increasing at a pace of 7.6 percent, compared with restaurants’ rise of 4.5 percent.
The latest example of U.S. inflation seems likely to come from 99 Cents Only Stores, the Western retailer that stocks everything from canned beans to cleaning supplies, party favors and fresh vegetables — all for 99 cents or under.
On Monday, the City of Commerce, California-based company, with 277 stores in California, Texas, Arizona and Nevada, will announce what it calls “its first change to its price policy since its founding over 25 years ago.” The Los Angeles Times said this was most likely a precursor to price hikes.
99 Cents Only Stores isn’t fessing up just yet, but chances are prices won’t be getting any lower, given the rising price of food staples like milk, eggs and bread that the company sells.
The company’s most recent ad announces deals like 99 cent cantaloupes, Hannah Montana notebooks, microwave popcorn and reading glasses.
99 Cents Only Stores posted a net loss of $1.51 million in its most recent quarter despite a 4 percent rise in sales from a year-ago net profit of $2.96 million. Profit was hurt by rising operating expenses and higher cost of sales.
Check out what it costs National Football League fans to attend games.
The latest NFL season got under way Thursday night as the defending Super Bowl champion New York Giants opened their season with a win (pictured right). For their fans, there were some changes that affected their wallets.
The average ticket price to attend an NFL game rose almost 8 percent to $72.20, according to Team Marketing Report, a Chicago-area sports marketing firm. And if a family of four wants to take in a game played by the Giants, get ready to shell out almost $500 for tickets, beers, hot dogs and other items.
Check out the fading influence of tax rebate checks.
Tax rebate checks helped boost June retail sales but their influence appears to have petered out by July, according to data released by the Commerce Department on Wednesday.
The figures showed that total sales at U.S. retailers declined 0.1 percent in July, which was in line with forecasts made by Wall Street economists. A big reason for the drop was a fall off in auto sales. Auto and auto parts sales fell 2.4 percent in the month, their biggest drop since April, and were off a whopping 10.5 percent from year-ago levels.
Check out more signs of consumers being put in a vise.
Personal income rose 0.1 percent in June, the Commerce Department said. That was the lowest rise since April 2007.
And in fact, if it were not for the economic stimulus checks some consumers received in June, disposable income would have shrunk, the department said.
Meanwhile, costs continued to rise. The personal consumption expenditures price index — an inflation gauge — rose at its highest year-over-year pace since May 1991.
Consumer spending rose 0.6 percent in June, but actually fell 0.2 percent accounting for inflation. So consumers are spending more to get less.
Oh, and one more thing on the gloomy economic front, Challenger, Gray & Christmas Inc said planned layoffs at U.S. companies rose 26 in July from June.
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Second-quarter profit at cosmetics firm Avon Products Inc more than doubled, as demand in Latin America and other overseas markets more than made up for sagging U. S. results.
Check out the demise of the dollar menu as we know it?
McDonald’s, dealing with rising commodity costs in the U.S., said it is looking at changes to its popular Dollar Menu, which accounts for about 14 percent of U.S. sales.
“What fits on that menu will look different than now because it has to be profitable,” said McDonald’s Chief Operating Officer Ralph Alvarez on a conference call with analysts.
“We’ve got to make sure we’re pricing smart, not just pricing low. We’ll make the move at some point,” Alvarez said.
The comments from Alvarez come two months after Chief Executive Jim Skinnner said the company was willing to absorb some rising costs in order to ensure customer loyalty.
“This is not the time to be passing that on to consumers. They have long memories,” Skinner said.
One analyst said the popular double-cheeseburger could disappear from the Dollar Menu.
But pegging an offering, or even a business, to the dollar can prove to be a dicey proposal. The dollar has weakened and costs have gone up. Most “dollar” stores, for example, stopped capping prices at one dollar years ago.
But analysts do not see McDonald’s straying too far from the dollar.
“We do not expect McDonald’s to abandon the dollar price point, but rather evolve the menu with either new products at a near-dollar price point or adjust the pricing of select products that have seen significant cost pressures,” Goldman Sachs analyst Steven Kron said in a research note.
Perhaps calling it the “Mighty close (to a) Dollar Menu” would solve the problem. To long? Well, that could always be shortened to “McDollar Menu.”
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And the plot thinned… (N.Y. Times)