Narcissistic Vanity is coming back
Remember the 80s when narcissism was reinvented on American TV and re-branded far beyond the attempts of French Royalty in the 18th century to accomplish eternal youth. TV commercials with smooth skinned 22 year old’s seductively reinforced that you deserved the best of the best and that you were definitely worth the highest priced designer names in the market. Well that form of narcissism seem to be making a full comeback.
After reading the weekend papers (online in my case), there is an obvious optimism being pushed regarding the unfolding of a successful holiday shopping season in the U.S. Increase percentages are enthusiastically spread across the nation as if Black Friday constituted benchmark accomplishments. Sales are 16% up; one out three Black Friday shoppers this year bought online; average spending is up; in short retailers are hopeful for Holiday Sales.
There were also numerous articles over bonus season in the banking industry and how the high-end consumer is totally abandoning frugality. The New York Times heralded that it was all about the “shopping-for-me-this-year” theme. Narcissism has staged a massive comeback based on the sentiment that “Doom and Gloom” is interesting for a couple of days, but after that it gets boring.
The S&P Retailing index has ballooned more than 20% in the last nine days and has outpaced the rest of the market by 14 percentage points. The retailers in recent months have embarked on a hiring spree of the likes we have not seen since 2006 and have bulked up on inventories at a pace last seen in 2005. And those years marked the undisputed boom for sales in the last cycle. Nobody will argue with that.
Payroll growth was surging in 2005/2006, the unemployment rate was half of today’s level and consumer confidence was about twice what it is today. In addition the bank’s credit taps were wide open for anyone with a faint pulse.
Some are already celebrating a 72% consumer confidence rating, 20 points up from couple of months ago, giving birth to the idea that we can step into a bucket and lift ourselves up by the handle.
And here is why. In the most recent weekly data through November 17th, consumer borrowing from the banks sank $8.4 billion and has contracted now in five of the past six months — by nearly $20 billion or a 14% annual rate. Conclusion: many of the deals made out there, like in the housing market, seem to be increasingly all-cash deals. People in growing numbers are paying in cash, even if it comes in the shape of a plastic card that says DEBIT, followed by a CC company’s logo. People in growing numbers are learning to pay cash for purchases. And tell me this; if the frugality theme has left the building, why are retailers so reluctant to raise prices?
Deflation or cashflow: The month of October saw the retailers cut clothing prices by 0.4%, the third decline in the past three months. Jewellery prices were reduced 0.7% last month. Video-audio equipment and the comparables dipped 0.1% and have deflated now for four months running. Stores cut their toy prices an average of 0.5% and have cut the listing price now in seven of the past eight months. Book prices fell another 0.2%, the second consecutive decline. Ditto for appliances, which saw prices drop 1.2% in October.
The war of the worlds between inflation and deflation writes another chapter here and even though it may be nice to know that neither one is really at play, the optimism pulled from it is warm and fuzzy enough to have many pundits yell recovery from the rooftops. After all consumer spending represents 70% of the U.S. economy, and if consumers spend money and have confidence, we are on a fast train out of the hole…. or not? Yes…No?
Also Judging by the Fed’s balance sheet, the money multiplier is still not inflating because credit is still contracting, which means that consumer prices are still deflating — at least outside of the commodity and primary producing stage.
Well I tell you this much. Keep an eye on the price of gift wrapping paper. As everyone seems to be expecting a vibrant holiday shopping season, the price of gift wrapping paper is declining at a 12% slide per year. That is a record decline for this crucial time of the year and the price index is all the way down to January 2009 levels when sweaty palms and white knuckles were the economic sentiments. Explanations are few and confused, as it maybe an early sign that the Holiday Season may not be as jolly for those high end retailers as the consensus currently expects.