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The U.S. propaganda-machine has been steadily ratcheting-up expectations for the 2009 holiday-shopping season. This is not surprising. As a consumer economy, the health of the retail sector is critical to the overall health of the U.S. economy, and the retail sector itself is totally dependent on the Christmas shopping season.

Clearly the U.S. government cannot pretend the U.S. (consumer) economy is “growing” if, in fact, retail sales are declining. Officially, the preliminary reading for “Black Friday” sales (the day after U.S. Thanksgiving) showed a tiny 0.5% increase. However, that figure is not adjusted for inflation.

John Williams, of Shadowstats.com has pointed out that while official inflation showed the largest decline (i.e. deflation) since 1950, that if the same methods of measurement were used today as in 1950 that it “did not drop below 5%, at worst, in the current cycle”. Thus, while Americans might have spent a tiny bit more money this year, they purchased less goods.

With profit margins for U.S. retailers severely squeezed due to a Wal-Mart-led “price war”, selling less goods for less profit obviously means a worse holiday shopping season than last year – which was already billed as “the worst in 40 years”.

This “surprising” weakness in the U.S. retail sector cannot be over-emphasized. Last year, holiday shoppers were shell-shocked by the combination of a stock market crash, an economic collapse, the disintegration of the U.S. housing market, and the most-rapid rate of job losses in more than 70 years.

All of those factors are now supposedly behind U.S. shoppers, with the economy supposedly growing, the stock market pumped-up to recover most of the 2008 losses, and job losses have supposedly slowed to a modest rate – yet they still bought less.

The fact that all these supposed improvements in the U.S. economy have had zero positive impact on the U.S. retail sector illustrates two points which I have made on several occasions. First of all, it confirms my previous assertions that the U.S. economy is not growing (see “The U.S. Economy is NOT Growing”), there has been little improvement in U.S. unemployment (see “Wall Street Invents New Jobs Propaganda”), and the U.S. housing market is not even close to a “bottom” (“Housing Sector Mirage”).

More specifically, it confirms my previous analysis of the U.S. retail sector (see “Death of the U.S. Consumer”). This is not “rocket science”, nor even complex economics. It's all just simple arithmetic. With falling employment income, dramatically reduced wealth, and no access to additional credit, it's obvious that U.S. consumers can't spend more.

This is why I keep pointing out how totally irrelevant U.S. “consumer confidence” reports have become. It doesn't matter how “confident” consumers are if they have no money and no credit. Indeed, the U.S. economy would be in much better shape if it had a population full of gloomy-but-rich consumers, rather than the “confident” but broke consumers which must (try to) support this sector.

However, as bad as the headline number was from Black Friday shopping, the details of this data are even more troubling with respect to the future of the U.S. economy. As I pointed out originally in “The Death of the U.S. Consumer Economy”, lower margins and lower sales volumes are strangling the U.S. retail sector – which still has considerable excess capacity versus the new habits of U.S. consumers. This means that “cost cutting” is now the most important strategy for all retailers.

Sadly, we already know what this means: massive lay-offs. This was already “in the cards” even before Friday's dismal results. As I pointed out in previous commentaries, U.S. retailers have already decided that moving away from retail outlets and towards much more on-line retailing is the only path toward survival.

Friday's data showed that while overall shopping volumes fell, on-line sales rose by 35% (on a nominal basis) versus a year earlier. However, currently, on-line sales account for less than 4% of total retail sales. What these shopping numbers dictate is that U.S. retailers must try to sell most of their goods on-line if they want to survive this generational shift in U.S. consumption habits.

The problem for the U.S. economy is that on-line retailing requires only a tiny fraction of the employees required for retail outlets. The frantic shift by U.S. retailers to boost on-line operations and dramatically reduce retail stores means that tens of millions of U.S. retail sector jobs are at risk – if not already doomed.

Meanwhile, the greatest collapse in government revenues in U.S. history means that all levels of government will also dramatically reduce employment. Thus, the U.S. economy is facing the combination of a collapse in employment in its largest sector (retail), and a collapse in government employment – which was the largest source of new jobs over the last decade.

As I have driven home previously, the U.S. consumer economy is in a downward death-spiral, where less spending leads to less jobs, which leads to even less spending, and even fewer jobs. With roughly $2 trillion in lost spending-power from the peak of the U.S. housing bubble, the approximately $250 billion in Obama “stimulus” (which actually reached the economy this year) could never possibly have been enough to halt the downward momentum in the U.S. economy.

The anemic results of Black Friday can be expected to instill panic among U.S. retailers – many of whom were dependent on a strong holiday shopping season just to survive. Thus, we can expect to see even more self-destructive price-slashing between retailers. The all-out effort to take shopping dollars away from other competitors means profit-margins reduced to zero. Even the “winners” of this holiday shopping season will end up as losers.

It will not be a “Merry Christmas” in the U.S. economy this year. While there is little joy in playing the role of “the Grinch”, it is obviously more important to be accurate and honest in assessing this dire situation than being mindlessly optimistic (or simply deceitful).

“Black Friday” originally received its nickname based on the fact that it was this seasonal shopping-orgy which was relied upon to move U.S. retailers “into the black” (i.e. profitability) for the year, as a whole. However, these “orgies” are becoming more like “wakes” - signaling the death of countless U.S. retailers. It thus becomes inevitable that “Black Friday” will take on a much more bleak connotation for U.S. retailers in the years to come.

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written by FLOWERSMargo27, September 12, 2010

Some time before, I really needed to buy a good house for my firm but I did not earn enough money and could not buy anything. Thank heaven my sister proposed to try to take the business loans from banks. Thence, I did that and was happy with my car loan.

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written by JsJ, December 01, 2009

Yes, it is true that the value of savings will be inflated away, and at the present time the average American consumer should not bother with saving, however the macroeconomic picture is not quite that simple.

I believe that instead of actually saving, these individuals should be paying down debt, and there is some evidence that many people are at least trying to do so. Repairing the household balance sheet is the first step in getting us to where we need to be as a nation.

I believe every American knows that squirrelling cash away in a bank savings account is a net loss. Americans only use savings accounts for liquid savings, i.e., money they might need to cover an emergency. Other savings go into MMAs, CDs, or other financial instruments. Although I think both CDs and MMAs are going to get *killed* with inflation, I still do not think it is a negative thing for people to be saving.

What we really need in the USA is to wake up, realize what the Fed is doing, and end them. If that means that millions of people get "burned" when the value of their savings is hyper-inflated away, then so be it. Ronald Reagan was a sea-change for the U.S. after the malaise of the 70's, and it is my sincere hope that the next president of the United States will be equally transformative. Of course Reagan's deficits (or Congress', depending on who you ask) were the main cause if not quite the precipitating factor of today's crisis, I believe the next president will be very, very important to the future of America.

If it is a Peron-esque cult-of-personality type, then I'll register at the Canadian and Australian embassies for emigration ASAP -- but if our next president is Ron Paul or even someone cribbing from Ron Paul's script then I have real hope for my country.

Time will tell. The most important thing for the U.S. right now is a cultural change, not the inflationary losses we can expect in the next few years.

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written by Jeff Nielson, November 30, 2009

JsJ, you're certainly right that moderate/rational/sustainable (choose your label) U.S. consumption is part of the healing process.

What I have to ask is with the U.S. government (and the Wall Street banksters they represent) determined to try to keep this massive debt-bubble inflated, what is the point of U.S. consumers TRYING to save anything if inflation (and likely hyperinflation) will simply cause those savings to evaporate?

The only answer for prudent Americans would seem to be to convert their savings into gold or silver (or simply FOREIGN assets) as quickly as they accumulate those savings.

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written by JsJ, November 30, 2009

It is a healthy sign, overall. Endless inflation leads to overconsumption (according to Von Mises and others). With the imminent end of overconsumption, we may see a return to truly productive uses of capital. Instead of stuffing ourselves and our McMansions with too much "stuff", I am very hopeful that my fellow Americans are realizing that not only *can* we make do with less, but we may be all the happier for it.

There will be major suffering in the interim, but in the end this frenetic consumerism had to stop, and though I wish it had been sooner, it turns out that later is good enough.

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written by realist, November 30, 2009

I agree with your analysis. The new name for this shopping day should be "Red Friday". It will indicate all the red ink for retailers.

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