Economy

The “Skinny” on 2010 Holiday Spending

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Consumer Holiday Spending
Holiday spending on the rise? Yes, but ...
The “early returns” from this year’s Black Friday retail sales are quite encouraging. Online retail sales are experiencing an even bigger bump in activity. The question is, do these positive early results foreshadow a strong holiday season overall?

Each year, Gallup attempts to answer that question in advance by conducting a poll every November in which it asks U.S. consumers for a prediction of the total amount of money they plan to spend on holiday gifts. This year’s poll findings were published this past week.

And the results? The good news from the consumer economy’s standpoint is that the average personal spending expectation has risen to $714 for 2010, which is ~12% higher than last year’s $638.

The not-so-good news is that we’re still in the doldrums when measured against most of the previous decade. In fact, only in the years of 2009, 2008 and 2002 has expected personal spending been lower than it is this year.

If we take an average of the ten years covering 2000-2009, the expected personal spending found by Gallup’s survey is $747, which means that 2010’s dollar amount doesn’t even come up to the average of the past decade.

Here’s another interesting finding from the survey: Evidently, the increase in expected holiday spending compared to last year is being driven by only a small percentage of consumers. Half of the Gallup respondents reported they would be spending “about the same” this year, whereas one third reported they would actually be spending less.

The remainder – fewer than 15% — reported they would be spending more.

And all of that activity on the Internet? We can be sure a goodly amount of it is driven by the desire to find the very best price available. And to prove that out, the latest online holiday shopping report survey from rich media firm Unicast finds that more than half of consumers are using the Web to research and compare deals between online stores and retail outlets.

The bottom line on all this: It’s a mixed picture with a slight lean on the scale in favor of optimism. Which is a darn sight more positive than what we saw in 2008 and 2009.

Happy Chris-kwanz-ukah, everyone.

China overtakes Japan … and who’s surprised?

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Chinese + Japanese FlagsThe somewhat breathless headlines earlier this week reporting that China had nudged past Japan to become the world’s second largest economy behind the United States, didn’t particularly grab me.

In fact, it seems almost anticlimactic that Japan has finally been overtaken. Hasn’t Japan’s economy been in the doldrums for years?

In some sense, it seems like Japan has hardly mattered now for the better part of 20 years. By contrast, economies like those in Brazil, India and the Far Eastern countries have been the ones shining brightly and getting most of the business coverage.

Actually, I’m old enough to remember a time, back in the 1980s, when the rise of Japan’s economy was of huge concern to American and European manufacturing and banking organizations. “Japan, Inc.” was a continuing topic in the pages of BusinessWeek and Fortune magazines. Japanese managerial styles and its participatory worker groups were the focus of many a management seminar and how-to business book.

What happened? During the 1980s, Japan’s economic miracle turned into a massive real estate bubble before imploding in the early 1990s. What came next was a “lost decade” – a stagnant economy from which the country has never really recovered.

And today, demographics and other factors are catching up with the country. Things like low population growth (and an aging population to boot), weak domestic demand for goods, slow growth in exports, a strong currency and even deflationary pricing forces … these are the characteristics most observers assign to the Japanese economy.

Some economic miracle, huh?

Meanwhile, China keeps chugging away, charting 10%+ annual growth rates even as the average Chinese citizen continues to earn just one-tenth of what American and Japanese workers make.

But if we look a little more closely at Japan’s experience, there may be lessons for us here in the U.S. In fact, some characteristics are uncanny in their similarity. More ominously, some economists believe that China is on course to overtake the U.S. and become the world’s biggest economy inside of ten years.

That seems startling on the face of it. But when you consider the symbiotic relationship between the U.S. and Chinese economies – we’re China’s largest export customer and they hold a ton of our dollars – it becomes easier realize just how much our two countries need one another.

“Accidental allies,” it turns out.

USPS: Yes, it’s in the news again.

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It seems the U.S. Postal Service is never out of the news – and the news is almost always depressing or infuriating.

And last week, the USPS made the headlines not once but three times. The first item was a financial report – numbingly repetitive by now – that the agency lost nearly $1.6 billion in the last quarter.

Like a bad movie that never seems to end, the USPS is on track to lose as much or more money in FY 2010 than it dropped in 2009. Meanwhile, the Postal Service continues to seek ways to reduce expenses by cutting back on the services it provides. Look for Saturday mail delivery to be a thing of the past by 2013.

Then, later in the week came news that Robert Bernstock, the USPS’s former president of mailing and shipping services, was found to have improperly used his position to conduct outside business, including helping award six non-competitive contracts to several of his former business pals. The Office of Inspector General, which investigated his activities from July 2009 onward, also concluded that Bernstock “used his subordinate staff to conduct work that supported his outside business activities.”

Bernstock resigned his position on June 4.

Hard on the heels of the Bernstock revelations came the nice little news nuggett that the USPS has been overcharged in excess of $50 billion for payments to the Civil Service Retirement System (CSRS) – payments that were made over a 37-year period from 1972 to 2009. The Office of Personnel Management, which is responsible for calculating the CSRS pension liability, is now reconsidering its calculation of the USPS’s pension assets in light of the report.

While it’s nice to see that the CSRS error is being remedied, it’s pretty amazing that something so inaccurate as this could have gone undetected for the better part of 40 years!

And what’s the USPS doing for an encore this week? It’s filed for an exigent postal rate increases ranging from 5% on first class mail to a whopping 23% on parcels. Isn’t that wonderful: reward inefficiency by getting a price increase.

This quartet of USPS news items over the past week embodies everything that concerns those who are looking at the prospects of increased government involvement in health care with dread: operational inefficiency … financial mismanagement … corruption and backroom dealing at the highest levels.

It’s also a cautionary tale for those who blithely believe that if we could only move this or that business activity away from the “money-grubbing private sector” and give it to a government entity instead … all of our problems would be solved.

Uh-huh.

How We’ll Thank Dad on Father’s Day

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NecktiesDid you know that Americans will spend an average of over $90 on a Father’s Day gift this year? That’s the conclusion of the National Retail Federation’s annual Father’s Day Intentions & Actions Survey of nearly 8,500 U.S. consumers.

I was surprised, too. Maybe we’re a bit more frugal in the Nones household.

In any case, it’s clear that Father’s Day gifts have gone far beyond the traditional necktie. Around 40% of the NRF survey respondents reported that they’ll be treating Dad by taking him out to eat. And about one-third are taking the really easy way out by buying gift cards.

The remaining respondents are planning to purchase Father’s Day gifts that range from clothes to electronics.

Based on the survey findings, the NRF predicts that nearly $10 billion will be spent on Father’s Day gifts this year. Here are the largest categories:

 Going out to eat: ~$1.9 billion
 Clothing items: ~1.3 billion
 Gift cards: ~$1.2 billion
 Electronics: ~$1.2 billion
 Greeting cards: ~$750 million
 Tools and appliances: ~$575 million

As to where people will shop for their gifts, dear ol’ Dad will be proud to know how cost-conscious and efficient they’ll be in making purchases, since a majority of the respondents plan to shop at big box or discount stores, or make online purchases.

Incidentally, Father’s Day isn’t just for Dads anymore. In fact, only about half of the NRF survey respondents will be giving gifts purchased for fathers or stepfathers. The rest will be giving to husbands, sons, brothers, grandfathers … or just good friends.

Happy Father’s Day everyone.

A mobile society? We’re not there again yet.

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U.S. Population MigrationLast year, I blogged about a startling development in the mobility of Americans: fewer of us moved in 2008 than in any year going back decades.

If there was any proof of the recession’s toll on the lives of many Americans, this is surely it. Not only that, it reflects the lost allure of many of the “magnet” states of recent decades, particularly Nevada, Arizona, California and Florida.

Now, new data covering 2009 have just been released by the U.S. Census Bureau. The latest information reveals that more Americans moved in 2009 than in 2008 … but it was just a small uptick.

Moreover, the increase in mobility was almost entirely the result of people moving within their home counties – nearly eight times more prevalent than migrating from state to state.

What does this mean? In many instances, intra-county mobility may be the result of people who have moved in with family or to nearby rental properties after having lost their homes to foreclosure.

And the low rates of mobility in general may reflect the unwillingness or inability of people to move because they owe more on their mortgage than their home’s current value, thanks to the collapse of the housing market.

William Frey, a demographer and senior fellow at the Brookings Institution, sums it up this way:

“These data show that the great migration slowdown, which began three years ago, shows no signs of revising to normal U.S. patterns. Since labor migration is often seen as the grease that spurs the flow of goods, capital and job creation, these new numbers are not encouraging.”

Mobility almost always declines during periods of economic hardship. But it’s now clearer than ever that this particular recession has caused the biggest drop in mobility rates America has seen since the days of the Great Depression.

U.S. consumers: More comfortable than ever making online purchases.

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Online purchasingHave U.S. consumers finally gotten over their skittishness about making purchases over the Internet? A newly released study from Javelin Strategy & Research suggests that they have.

The 2010-2014 Online Retail Payments Forecast report draws its findings from data collected online in November 2009 from a randomly selected panel of nearly 3,300 U.S. consumers representing a representative cross-sample by age, gender and income levels.

Based on the Javelin sample, nearly two-thirds of American consumers are now either “comfortable” or “very comfortable” with shopping online.

On the other end of the scale, ~22% of U.S. consumers continue to be wary of online purchasing; these people haven’t made an online purchase within the past year … or in some cases, never.

These figures suggest that the consumer comfort level with making online purchases is as high as it’s ever been. And how are consumers making their online payments? The Javelin study reports that among those respondents reporting online activities, the five most popular payment methods are:

 Major credit card: 70%
 Major debit card: 55%
 Online payment service such as PayPal®: 51%
 Gift card (good at one specific merchant): 41%
 Store-branded credit card (good at one specific merchant): 27%

Even with more than half of consumers using a debit card for online purchases, the total dollar volume of online sales attributable to debit cards is less than 30%. Javelin forecasts debit card share to continue climbing in the short-term, however, due to tighter consumer credit standards now in force.

Bottom line, the Javelin report suggests that despite the periodic horror stories that have been published about credit card information and other financial data being captured or mined off the Internet, the convenience and price/selection benefits of online shopping are winning the day with consumers. Not surprising at all, really.

Your declining retirement savings: It’s all relative.

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EBRI's Annual Retirement Confidence Survey
The EBRI's 2010 Retirement Confidence Survey reveals severe challenges faced by many American workers.
As difficult as the last two years have been on your finances, you’ve probably saved a lot more for retirement than your fellow workers.

How is that possible? Because it’s all relative. The Employee Benefit Research Institute’s most recent annual survey of U.S. workers and their retirement savings reveals that the percentage of workers having fewer than $10,000 in savings stands at 43%. That’s up from 39% in 2009.

Even more ominous, the percentage of workers who reported they have less than $1,000 in savings is 27% — significantly more than the 20% reported in 2009.

The EBRI’s definition of retirement savings excludes the value of primary homes and defined-benefit pension plans. Still, these are startling figures, showing that large numbers of Americans have little if anything in the way of a savings safety net.

It’s true that some people have plowed their savings into the purchase of a home. But these “house poor” individuals are often among the first who face mortgage foreclosures upon the loss of a job, because they have so few cash resources upon which to fall back.

If there is a glimmer of good news in these dreary statistics, it’s that more people are awakening to the reality of their finances. Gone is the notion that Social Security will pay enough for a decent retirement lifestyle. Indeed, less than 20% of respondents expressed confidence in their ability to save enough for a comfortable retirement. That’s the second lowest reading ever recorded in the 20-year history of the EBRI’s annual survey.

Only ~45% of workers with some form of savings have more than $25,000 stashed away … and people know that $25,000 is not nearly enough for retirement, Social Security payments being what they are. Consequently, in the 2010 EBRI survey, one in four workers report that they’ve decided to postpone their retirements (that’s up from ~15% saying so in the 2009 EBRI research).

For its survey, the Employee Benefit Research Institute queried ~1,150 U.S. workers (age 25 and older) plus retirees, making it one of the most comprehensive field studies on the topic of U.S. retirement savings. There’s a wealth of additional statistics and insights available here.

The e-Commerce Hiccup

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One of the bigger surprises of business in the year 2009 was how big of a hit U.S. e-commerce has taken. According to digital marketing intelligence firm comScore in its just-released report 2009 U.S. Digital Year in Review, e-retail spending in America decreased about 2% during the year to come in just under $210 billion.

This represents the first decline in e-commerce spending ever recorded.

Obviously, the economic recession was the culprit. But considering that e-commerce growth has charted above 20% annually in every year leading up to 2009, seeing an actual fall-off has raised more than a few eyebrows.

Where was the e-commerce decline most pronounced? It was in travel-related services, which saw revenues drop by 5% to ~$80 million. Not that all sectors saw decline. A few continued to experience growth during the year, including the books/magazines category which charted gains of ~12%. Online computer software purchases were also up by about 7%.

What does comScore see on the horizon for U.S. e-commerce? Is continued softness predicted … or a return to robust growth?

Analyzing the last few months of e-commerce activity during 2009 provides clues to the future: Growth looks like it’s returning. In fact, the 2009 holiday season marked a return to positive growth rates when compared against the same period in 2008.

[Granted, this comparison is made against “down” months of November and December in 2008, after the recession had already kicked in. But the pace of e-commerce activity is clearly picking up again.]

But whether it will go back to a 20%+ annual growth is still an open question.

Are younger Americans turning their backs on manufacturing careers?

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What are the attitudes of young Americans toward pursuing manufacturing as a career? A recent field research project gives us some clues – and the results don’t paint a very pretty picture.

The national survey was sponsored by the Fabricators & Manufacturers Association, International and was administered to ~500 teenage respondents. The poll found that a majority of teenagers (~52%) have little or no interest in a manufacturing career and another 21% are ambivalent, leaving only around one quarter showing any interest at all in considering manufacturing as a career path.

When asked why a career in manufacturing is not attractive to them, the top four reasons cited by respondents were:

 Prefer to have a professional career: 61%
 Prefer a job with better pay: 17%
 Wish to have better career growth than manufacturing would provide: 15%
 Don’t want to do the physical work: 14%

Perhaps we shouldn’t be surprised by these results, because manufacturing has never had quite the cachet of a professional career. But with the number of people graduating from college these days with no meaningful job prospects, it’s a bit ironic that teens still consider the traditional college degree/professional career launch pad as the better way to go.

Indeed, there are a good many misconceptions about “dirty” manufacturing work activities that are completely at odds with the reality. In fact, many manufacturing personnel work with the most advanced, sophisticated equipment and systems that require the kind of high-tech computer skills young people love to apply! And advanced technologies like robotics are to be found in manufacturing more than in any other industry.

Here are several other sobering findings from the FMAI survey:

 Six in ten teens have never toured a factory – or even stepped inside any kind of manufacturing facility – in their life.

 Only about one-quarter of teens have ever enrolled in an industrial arts or shop class.

 ~85% of teens spend two hours or less in any given week “working with their hands” on projects such as models or woodworking (30% spend no time at all on such pursuits during the week).

Here’s a thought: Could kids’ ambivalence about manufacturing be influenced by what’s perceived as “cool” in the career world?

TV programs, when they deal with the working world at all, aggrandize the careers of lawyers, doctors and law enforcement officers … or big business tycoons à la Donald Trump. Many school administrators tend to focus on only one “honorable” education trajectory for students – the traditional university degree.

Certainly in today’s economy, manufacturing jobs are being hammered just as much as employment is in many other industries. But despite the current situation, I think it’s possible more parents would support the idea of their children pursuing a manufacturing career – or a career in trades like welding or electrical – if the pursuit these types of careers received a little more moral support from the wider society.

Disappointing News from Both Sides of Business

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Amazon logoCaterpillar logoTwo announcements this week from opposite ends of the economy prove how challenged the business environment continues to be. On the “old industry” front, Caterpillar has announced that it will be permanently cutting ~2,500 employees from its operations.

At the same time, a few hundred hourly workers are being called back by Caterpillar to select factories that manufacture certain types of road construction equipment. That softened the blow a bit, but the overall message is clear: Despite the expected growth in infrastructure projects, the stimulus legislation isn’t having much if any “ripple” effect on related or ancillary business segments.

On the other end of the scale is the über-hip, “new economy” Amazon – an enterprise that has achieved so much success selling products of all kinds online. But Amazon seems to have laid an egg in one product category: selling fine wines. After spending several years attempting to organize a mail-order business around wine products – even with the enthusiastic cooperation of boutique wineries all across the country – Amazon has had to throw in the towel on this enterprise.

The hurdles that turned out to be so insurmountable? Everything from the logistics of shipping products that must be delivered directly to the recipients’ hands to avoid problems with perishability … to the Byzantine state laws that regulate the shipment of wine across state lines. (Taken as a whole, those laws are probably more complicated than the provisions of the health care insurance reform bills being debated on Capitol Hill!)

In the end, even the vaunted Amazon – so used to success in practically everything it undertakes – has had to give up on trying to sort through the myriad governmental laws and regulations along with the challenges of wine shipping and delivery, while also turning a profit on the enterprise.

Incidentally, this isn’t the first time Amazon has gotten burned in this business. Back in the late 1990s, the company sank ~$30 million into an ill-fated venture with Wineshopper.com that likewise came to nothing. I guess when your company is made up of mostly twenty-something-aged workers, the institutional memory is pretty short!

Sour grapes, anyone?