It’s becoming increasingly clear that American consumers have run out of money, and demand for consumer goods (particularly higher-priced ones) is going down like the proverbial lead balloon. Sundance commented a couple of weeks ago:
U.S. Retail Sales Collapse as Govt and Media Attempt Denial That Economy Is Contracting
When retail sales are calculated, they are calculated in dollars. Any recorded increase in retail sales that does not exceed the price increases in those items is factually reflecting a drop in units sold.
Ex. – if you sell 300 items at $1.00 each, you have $300 in sales. If you sell 250 items at $1.25 each, you have $312.50 in sales. Technically, you have a 4.1% increase in sales. However, you have sold 17% less items (50 units).
When you are selling less stuff, your business (economy) is contracting, not expanding. We have been in this contracting cycle (an actual production recession) since May/June of last year; however, the contraction has not been recognized because massive inflation is hiding it. That, my friends, is the painful truth and it spells big trouble ahead.
. . .
- Furniture prices rose 0.8% in Feb, total furniture sales dropped 1.0%
- Electronics and appliances rose around 1.8% in Feb, sales dropped 0.6%
- Online sales items rose in price around 0.5%, sales dropped 3.7%
What this reflects is an actual contraction much greater than the dollar drop in sales. In most cases the unit sales dropped at a rate six times the price difference. If you reverse engineer the math, the average is approximately a 15% reduction in durable good units purchased … This means people working in the durable goods sector, production, assembly, transportation, delivery and retail sales staff, are about to get laid off work, RIF’d and downsized.
Math is math, and inflation clouds the realities of the economy.
Ordinary people are prioritizing spending and watching their wages get chewed up by higher prices for food, energy, fuel and housing.
There’s more at the link.
About a week later, the CEO of Freightwaves, a logistics and supply chain publication, predicted:
Just 3 years after 2019’s trucking bloodbath, another is on the way
March is typically a strong month for trucking, as shippers start to stock their shelves in preparation for summer. And late March normally gets a reliable end-of-quarter boost in volumes as shippers pump sales and reduce inventories. This year, we are not seeing that surge. In fact, March volumes are softer than at any point in 2021 (other than holidays).
. . .
More than likely, the lower volumes are due to a major consumer slowdown. Inflation that began in 2020, combined with the surge in fuel prices related to increased inflation and the Russian invasion of Ukraine, have made consumers move to the sidelines.
. . .
After two years of massive consumption of physical goods, consumers are pausing their spending … February retail sales were nearly flat at 0.3%, missing expectations … Everything is more expensive than it used to be and consumers are starting to be more cautious about the future. High fuel prices and runaway inflation sap consumer confidence and will be a drag on discretionary purchases.
Again, more at the link.
Finally, as if it needed confirming, yesterday the Wall Street Journal reported:
With Inflation Not Letting Up, Shoppers Cut Back on Staples
American consumers are starting to cut costs on mainstays from toothpaste to baby formula as inflation hits a swath of the economy that had thus far proven resistant to substantial price increases.
Procter & Gamble Co., Clorox Co., Kraft Heinz Co. and other consumer-products giants have made a bet that consumers will pay up for household products even as inflation takes hold. Over the past year, the companies have seen profits and market share grow as they have raised prices on products from detergent and diapers to snacks and soda.
Now consumers, hit by soaring costs for everything from gasoline to child care, are drawing a line, analysts and retailers say. Shoppers are buying staples in smaller quantities, switching to cheaper, store-name brands and more rigorously hunting for deals. The shift is especially pronounced among lower-income consumers who splurged on household products amid the heights of the pandemic, they say.
. . .
The consumer-staples industry “has crossed a threshold,” said Krishnakumar Davey, president of strategic analytics for IRI. “Consumers have been pinched for some time, they are observing that they are paying more and more, and they are beginning to drop some items from their basket because they can’t afford it.”
What worries me is that despite lower consumer demand, preferred goods/brands are still hard to find, as I pointed out yesterday in connection with the food supply. Normally, if demand is lower, manufacturers and distributors are better able to satisfy existing market demand. Not this time. Instead, a lot of goods are still in short supply, because manufacturers can’t get parts or ingredients to make enough of their products. The backed-up supply chain is so jammed that even greatly reduced demand won’t give us a break on shortages; in fact, if trucking gets hammered by the slowdown (as Freightwaves predicts), it’ll be even harder to break the logjam and refill the supply pipeline, because there’ll be fewer trucks distributing what we need.
Putting all those things together, it’s clear we’re in for hard times. As Sundance concludes:
Prepare for a long-duration recession, combined with increasingly costly energy costs.
That’s not a reason to be scared. We can’t avoid what’s coming down the pike at us, so there’s no reason to try to run away from it. Rather, let’s face up to it, re-examine our own household spending and resources, and adjust whatever we can, wherever we can, to prepare to face it as best we can. I’m encouraged to think that my parents survived the Great Depression, and World War II, and all the topsy-turviness of emigrating from England to South Africa, then to Canada, then back to South Africa, while raising four kids and each completing a doctorate in their respective fields. If they could triumph over such adversities, there’s no reason I can’t take courage from their example and do my best to emulate them. I daresay many of us have such people in our family trees. Let’s leave an equally good example to those who will follow us.
This is no time to panic. Rather, it’s time to “stiffen the sinews” and “summon up the blood”. That applies particularly to November’s elections. Remember who got us into this mess, on both sides of the political aisle, and vote the SOB’s out of office. Republican or Democrat, if they’re a tax-and-spend politician, we’re better off without them. Vote for their opponent.