“There obviously is a real pent-up demand in America,” said Ray LaHood, the transportation secretary. “People love to buy cars, and we’ve given them the incentive to do that. I think the last thing that any politician wants to do is cut off the opportunity for somebody who’s going to be able to get a rebate from the government to buy a new automobile.”
LaHood also said:
LaHood said Wednesday that in just a brief time, "the government has proved we can get money out the door and sell almost 160,000 cars."
Aren't you thrilled the Federal Government can sell cars?
Meanwhile, beyond the obvious downside that throwing money it has to borrow or print into the hands of consumers is a fool's errand, the AP reports: Sluggish July sales show tight-fisted US consumers:
"The consumer is stressed and depressed," said Ken Perkins, president of retail consulting firm Retail Metrics. "Back-to-school shopping season is going to be very late."
It may not be just late (I assume he means 'delayed'); some sales will be 'deferred'.
The AP article continues:
Frank Badillo, senior economist at consulting group TNS Retail Forward, and other analysts have also noted that the uptick in car buying spurred by the government's "cash for clunkers" program might siphon sales from other categories like clothing and home furnishings in coming months. That could hurt back-to-school shopping as consumers shift available cash to car payments.
There you have it. In physics, and economics, you can't get something for nothing. You can't both print money or borrow it. You can't be a stretched consumer and suddenly take a bargain on a new car and buy that extra pair of jeans. Thus we see the extraordinary sales declines that just one year ago, and at any time in the past, say, 45 years, would have been seen as impossible (from the same AP article):
As club operator Costco Wholesale Inc. reported Thursday that its same-store sales dropped 7 percent in July, pressured by lower gas prices and the stronger dollar, the retailer said some of its strongest categories were food, including deli, candy and frozen food.
Candy? This nation is addicted to cheap credit and cheap sugar. Continuing with the AP article:
Target Corp., which has been stumbling because of its reliance on nonessentials like trendy jeans, posted a 6.5 percent drop, worse than the 5.8 percent decline analysts had expected.
TJX's 4 percent gain beat Wall Street's expectations for a 3.1 percent increase. It also raised its second-quarter profit outlook.
(FYI TJX is a deep discounter. This continues to demonstrate that consumers continued to trade down from Target to TJX and Ross Stores.)
Among department stores, Macy's reported a 10.7 percent drop in same-store sales, worse than the 9.1 percent drop that was expected. J.C. Penney's 12.3 percent same-store sales decrease was a bit steeper than the 11.4 percent decline that analysts had expected. But Penney raised its earnings outlook.
Comment: My wife was in a Macy's this week and noted a dank smell in the store and poorly kept-up changing rooms. Nonetheless a sign on the door said it was hiring. Re Penney's, there is only one way to raise profits in the face of declining sales: cut costs. That means pressure on its vendors and further onerous terms on its employees. And it appears that with teen unemployment at very high levels, parents have been pulling the plug on spending on clothing for their offspring:
Among teen retailers, Abercrombie & Fitch posted a 28 percent same-store sales decline, worse than the 26.9 percent drop that analysts expected. Wet Seal reported a 12.1 percent drop, worse than the 10 percent decline that analysts expected.
This blog post starts with truly idiotic statements out of the mouth of the Sec'y of Transportation and ends with unspun facts. More and more this economy resembles that of the 1930s. The debt deflation that went on then is underway. The "paradox of thrift" has taken hold at the corporate level, as company after company such as Penney's enhances its own profits by firing employees or reducing their hours/benefits -- thus harming someone else's consumer.
To date the U. S. is following the Japanese script a number of years out of phase: a manic financial bubble, imprudent financial companies turned into zombies by bailouts, frugal consumers, and a "bubble" in Government debt as the Government provides business for the financial companies by letting them sell and then trade large quantities of the debt at inflated prices. Remember that per David Rosenberg, for about 80% of the past 20 years, Japan has been out of recession.
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