Sunday, December 2, 2007

Doom and Gloom Makes Preemptive Strike on Christmas

It is a holiday tradition in American media to forecast poor Christmas sales. If it turns out sales aren't as slow as predicted, you can expect reports that shoppers are "only buying bargains" because "money is tight for shoppers this year." 2007 is no exception and is rather notable for the attempts of negative prognosticators to cling to their dire predictions even in the face of positive news. 

Even before Thanksgiving, news media such as the Boston Herald reported that, "The list of reasons why this year’s holiday season stands to be a tough one for retailers could be lengthier than most people’s shopping lists." ABC Channel 7 let us know that, "Despite the hoopla of an early start to the season, the holiday cheer's missing at retail stores." UC Berkeley Professor Bob Edelstein informed reporters that a slow holiday shopping season could have far-reaching consequences.

Black Friday finally came and it was grudgingly reported the next day that shoppers had come out in droves. The Washington Post quoted John Ford of Sears Holdings as saying that,"It exceeded our expectations. We had more customers at opening yesterday than we had in prior years, ... it was 50 to 100 percent higher than it was in previous years." Did the increased traffic change the prognostications? "I don't think so," said Candace Corlett a principal with WSL Strategic Retail and apparently professional doom-sayer. According to Corlett, shoppers were out looking but probably not buying. "It's become more of a shopping sport," Corlett said.

Five days after Black Friday, when more data could be collected, ShopperTrak RCT Corp., estimated Black Friday sales this year rose 8.3% from 2006 to $10.3 billion, aka "strong sales." Still, the doom sayers did not give up. Dow Jones warned that, "last year, retailers had a good start during the Thanksgiving weekend, but many stores struggled in December, and a shopping surge just before and after Christmas wasn't enough to make up for lost sales." Before you wonder if Dow Jones has good point, keep in mind that Christmas shopping in 2006 was a healthy 4.6% better than the prior year.

We are now officially one week into the Christmas shopping season. According to ShopperTrak, data for the Thanksgiving weekend, not just Black Friday, shows retail sales at a strong 6.5% over 2006. Have the doom sayers relented?  Of course not.  Instead they have resorted to the "shoppers are only buying bargains this year" argument. "The numbers don't tell the whole story," claims Peter Morici, an economics professor at the University of Maryland, "Retailers are trying to put a positive spin on things. People are very pessimistic about what things will be like this winter. ... they're buying less expensive items. So it all fits together. It indicates a slowing economy."

According to the Dow Jones newswire, the National Retail Federation forecasts a 4% rise in holiday sales from a year ago, the smallest gain in five years. In truth, despite being "the weakest in five years," 4% growth isn't bad. If holiday sales outpace economic growth it means that consumers are either going into debt or they are cannabalizing consumption from other parts of the year. Nobody should be disappointed in 4% annual growth. However, based on the data collected so far, I am going to take the over and forecast that holiday sales will exceed the forecast 4% increase over last year.

Saturday, December 1, 2007

3rd Qtr 2007: A Doom and Gloom Case Study

Surprise. The latest statistics show that the United States economy grew at an annualized 4.9% in the 3rd quarter of 2007.  You would have never guessed it from the tone of the media.  During the 3rd quarter of 2007 the media maintained its steady drizzle of reporting on how bad things were getting.  I took some time to capture some of the doom and gloom.

In early August, Reuters lets us know that, "Blue chips end lower as subprime worries lag" From the article's first paragraph:
"U.S. blue-chip stocks fell on Friday, capping a week of wild swings, as losses related to subprime debt loomed amid attempts by the Federal Reserve to dispel anxiety about the financial system's stability."
Yes friends, we were told things were getting dark. The Federal Reserve was trying to dispel fears that the financial system was no longer stable, but to no avail, the markets declined anyway. Thank you, Reuters.

USA Today, America's most read newspaper, reported in September that, "Job losses, recession fears hammer stocks; Dow sheds 250" According to USA Today:
"The culprit was the August jobs report, which startled investors because it unexpectedly fell for the first time since 2003. That raises anxiety that the mortgage/housing/credit mess has spread to the broader economy despite claims to the contrary from many corners of Wall Street and Washington."
Darn those "many corners of Wall Street and Washington," they are not being straight with us! Of course, USA Today later reported that the August jobs report was revised upwards to the reflect the creation of 89,000 jobs in that month. For some reason this rather positive news was reported under the inexplicably negative headline, "Treasurys plunge after jobs data"

If you have a good example of 3rd quarter doom and gloom. Drop a link in the comments below.

It's Always Doom and Gloom in the Media

It has been said that economists have successfully predicted 8 of the last 2 recessions. Surely the mainstream media has an even worse record.  Financial reporting in the American media is a tedious and unrelenting drizzle about the next recession allegedly lurking just around the corner. These articles are usually supported by a survey showing falling consumer sentiment, a smattering of data on whatever indicators in the economy are not completely bullish, and prognostications from economists who foresee an economic slowdown. Since it is unlikely that the economy will never have a recession, they will eventually be correct.  Whether they are genuinely prescient is another matter.   Even a broken clock is right twice a day.   The interesting thing is that recession is constantly predicted in the face of consistent and pervasive economic growth.  An economy is generally considered in  recession if the gross domestic product (GDP) is declining.  I created the graph below with data from the Economic History Services showing the annual GDP of the United States since 1980.

United States Annual GDP Since 1980

As you can see, recessions have been rare over the last quarter century relative to economic growth, with the gross domestic product of the United States more than doubling over that time period from just over 5 trillion USD to almost 12 trillion per annum.  Yet the doom sayers persist unashamed.