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The U.S. Mall-Vacancy Nightmare

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Last November, when it had become apparent that the U.S. consumer-economy was having another dismal, Christmas shopping-season, I wrote a commentary about what that portended: the death of the U.S. consumer. I pointed to a “generational shift” in U.S. consumer behavior (i.e. lower spending) – which even U.S. retailers themselves have clearly acknowledged.


The underlying reason for this reversal of behavior is that U.S. consumers are drowning in debt. In other words, this change in habits has been forced upon them, and as I detailed in that previous commentary, to “de-leverage” themselves from all that debt will require many years of thrift – and likely (at least) a full generation.


This is among the many reasons that I have utterly rejected the myth of a “U.S. economic recovery” as being merely a fabrication of government and media. As I have pointed out in many previous commentary, all that is required to change the real (negative) GDP that the U.S. economy is actually experiencing is simply to understate inflation – since every percentage-point of inflation which is swept under the carpet can be added to GDP. Thus, when people like John Williams of Shadowstats.com conclude that the U.S. government is always understating inflation (and by a large amount), this is the same thing as saying the U.S. government is always exaggerating its Gross Domestic Product.


This perennial pretending when it comes to the underlying health of the U.S. economy has now reached its “day of reckoning”. As Average Americans begin to open their eyes, reality begins to seep in: the U.S. has feigned “prosperity” for the last twenty years by simply piling new debts on its old debts – at a rate never before seen in any major economy.


Carrying roughly $60 trillion in total public/private debt, U.S. interest rates our now permanently frozen at 0% - as even a 1% increase in its interest rates translates into an extra $600 billion per year in interest payments alone. This equates to a 5% drop in GDP by itself, even before factoring in the “multiplier effect” of withdrawing that massive amount of capital from this decaying economy.


Since the U.S. cannot “borrow” the trillions it needs to finance its debt – at the lowest rates in history – it it forced instead to simply print-up vast quantities of dollars to “buy” its own bonds. To hide this fact, U.S. bond “auctions” have become so convoluted that even bond-experts with decades of experience have absolutely no idea who is actually “buying” these bonds. As I explained in a previous commentary, the bankers themselves have acknowledged that such “quantitative easing” works better if you lie about it – and pretend that you're not doing it.


While the U.S. government is obviously pleased with itself at being able to dupe most of the chumps (i.e. “experts”) in the market with their statistical chicanery, the lying has come with a terrible price-tag. Deluding U.S. state and local governments into believing that the U.S. collapse was not as severe as it really was, and then inventing a “recovery” (while the U.S. economy continues to flounder) meant that these other two levels of government didn't begin their own cost-cutting until their coffers were totally empty.


This has resulted in (by far) the worst debt-crisis for U.S. state and local governments in history. Illinois and California are already hopelessly bankrupt, with default the only option. Forty-six out of fifty U.S. states have budget-gaps – i.e. the need to slash their budgets or ratchet-up their excessive borrowing still further. As of yet, U.S. state governments have not been cut-off from borrowing in bond markets, but for the most-insolvent of those economies, this is something only months away, if not weeks. Meanwhile, these same governments are also facing roughly a $2 trillion funding-gap in their pension plans – just as the baby-boomers start retiring.


With U.S. state and local governments in the early-stages of many years of painful job-cutting, the easy-money of the Obama “stimulus package” is gone, and the temporary “blip” in employment caused by census-hiring is also gone. This means job-losses for the U.S. economy will once again accelerate, while for government workers, even those who manage to cling to their jobs will likely see wage and/or benefit cuts.


Compounding this economic catastrophe, as I wrote approximately two weeks ago, the second U.S. housing-bubble has now burst, with this next collapse certain to be much longer and much more severe than the first, sickening plunge in this market. With the most-oversupplied real estate market in history, even Fannie Mae officials have begun openly musing about the need to bulldoze “excess houses”.


It is in this context which we must view the terminal decline in the U.S. retail sector. Unlike governments, who can simply print money to (temporarily) cover-up their economic delusions, U.S. retailers have no such luxury. Propaganda doesn't pay the bills. Thus, the retailers themselves now understand that they face a multi-decade period of retrenchment in their sector.


The first shock-wave of U.S. shopping mall bankruptcies is now more than a year behind us, with the bankruptcy of General Growth (the second-largest U.S. mall owner) by itself leading to the bankruptcy of 158 malls (roughly ¾ of its total holdings). In even a semi-healthy economy, the largest wave of retailer and mall bankruptcies in history should have been enough to restore balance to this sector. However, recent data totally shatters that scenario.


U.S. shopping-mall vacancies are once again approaching an all-time record (in the 30 years over which such data has been collected) – and are actually higher than before the first wave of bankruptcies. This horrific devolution in the U.S. retail sector has two “drivers”, above-and-beyond the general economic fundamentals which I outlined previously.


First of all, U.S. consumers are simply buying less goods. Don't let misleading “consumer spending” statistics fool you. Such numbers are never adjusted for inflation. While the U.S. government continues to pretend that inflation doesn't exist in the U.S. economy, the inflation numbers calculated by the unimpeachable John Williams tell a different story.


Williams has pegged U.S. inflation at above 9% for all of this year, and apart from a very short burst of actual deflation, he has reported similar numbers in previous years. Thus, if U.S. consumers are spending 9% more to buy their goods, but total spending is only up 6%, then obviously the quantity of goods purchased is declining. Furthermore, this decline in (real) spending is hidden by the massive increases in health-insurance premiums which U.S. health-insurance oligarchs have rammed down the throats of cash-strapped consumers – increases ranging above 30%.


Yet instead of acknowledging this retail sector death-spiral, the U.S. government continues to focus all its energies on misleading Americans about the severity of this economic catastrophe, rather than taking any serious steps to reverse this economic devolution. This has forced U.S. retailers to take the only course of action open to them: down-sizing.

 

As I explained in previous commentaries, in the age of the “internet”, down-sizing in the retail sector is a very straightforward process: slash the number of (real) retail outlets, and continue to push consumers toward more on-line retailing. For retailers, this doesn't mean increasing either total sales or even market-share (since all other retailers are doing the same thing). Instead, it's all about slashing overhead – and the principal component of such “overhead” is the salaries they were paying to the legions of shopping clerks who used to be essential for such rampant “consumerism”.


To some extent, this transition was always inevitable. Two hundred years of capitalism, and the rapid technological advancements which has accompanied this have provided a conclusive, empirical lesson: technology always eliminates jobs faster than it creates new employment opportunities. Thus, for more than two hundred years our governments have been steadily slashing the length of the work week (from the original “work week” of 7 days/week, 12 hours/day) – as the only means of preventing massive structural unemployment from crippling our economies.


However, for the despicable and immoral reasons which I have described in many previous commentaries, our governments have frozen this permanent transition to a shorter work week. This has resulted in massive, structural unemployment across the Western world, with somewhere around 50 million people who are no longer allowed to work by their governments.


No work means no pay-cheques, which means less consumption – which is nothing less than “death” for a consumer economy like the U.S., where more than ¾ of GDP is directly derived from consumption. Thus, not only is the U.S. economy facing another massive-wave of job-slashing from the cyclical factors which are currently at work, but the massive structural unemployment problem worsens each day – as governments refuse to shorten the work week.


This is economic suicide. Period. Every Western economy will steadily destroy itself unless/until it deals with this massive, structural unemployment – only the rate of destruction will vary. Keep in mind that at the same time our governments choose to keep unemployment at its highest (real) rates in history that the largest demographic bulge in history (the “baby-boomers”) is retiring. It is a matter of simple arithmetic that a steadily dwindling number of employed individuals cannot possibly support two massive groups of non-productive citizens.


If this weren't disastrous enough already, in the U.S., this dwindling number of worker have seen their wages (in real dollars) decline to the same level as what their great-grandparents were earning in the Great Depression, with wages depressed by a similar amount in most Western economies. Such a tiny mass of earnings is not sufficient to fund either bloated, U.S. entitlement programs, nor is it enough to stop the vicious circle of less spending leading to less stores leading to less jobs leading (again) to even less spending.

 

 

Confirming this is the fact that the increase in mall-vacancies is not the result of new construction, with only a tiny amount of new, retail “space” being added through construction. And this increase in vacancies comes even as rents are still falling – an ominous combination which again the rebuts the absurdity of a “U.S. economic recovery”.


There was less than 400,000 square feet of new, strip-mall space added in the U.S. in the entire second quarter. To give readers some idea of how small a number this is, a typical large shopping-mall in the U.S. ranges in size from 400,000 to 800,000 – thus the entire U.S. economy added the equivalent of one new mall for the whole second quarter. Meanwhile, rents plunged nearly 3% below what they were from a year earlier (despite 9% inflation), and dropped by 0.5% from the first quarter.


Ultimately, the death-spiral of the U.S. retail sector is a very simple “equation”. No jobs = no money. No money = no consumption. No consumption = no retailers. As with most of the U.S.'s economic woes, this catastrophe cannot be dealt with by wall-papering the problems with propaganda – and then hoping they will solve themselves with time.


This downward devolution of the U.S. consumer-economy is the proverbial “vicious circle”, which by definition is self-perpetuating. This means the lies must end for both U.S. political cowards and media stooges, alike. It is time for U.S. “leaders” to first acknowledge reality – and then deal with it.

 

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Comments (4)Add Comment
Jeff Nielson
...
written by Jeff Nielson, July 11, 2011
Paxjds, I see the same thing in Canada - if not quite to the same degree. There is LOTS of "space" in our shopping malls these days, and stores which used to be busy (even if mostly "window shoppers") are now seeing much lighter traffic.

While things have picked-up from the worst of the Crash of '08, there is certainly no semblance of "normality".
paxjds
...
written by paxjds, July 11, 2011
Jeff,
One year later and it appears to me the Mall vacancies continue to rise, and more shuttered windows on retail stores. In the stores that are open, there are fewer sales clerks and very few sales cleks seem to know very much about the products on the shelves. Product quality seems to be dropping fast compared to 3 years ago, including Made in China.
Only business that seems to be doing great is Ben's Printing. Now we are past QE2, and I am wondering who Ben is selling our over 100 Billion Dollars spending a Month deficit too? Perhaps a new article on Ben's new Bag of Tricks are in order to explain our 2011 VOODOO ECONOMOCIS.
Jeff Nielson
...
written by Jeff Nielson, July 11, 2010
In fact it was widely reported that China has just gone through the "slowest" 6-month period of U.S. Treasuries accumulation of any time in the last 5 years.

My understanding is that Japan has increased purchases - but that's still a sham between 'The Three Amigos': Japan buys U.S. Treasuries, the U.S. buys UK bonds, and the UK buys Japan's bonds. It's no different than all three of those nations simply DIRECTLY monetizing their debt - except slightly better optics.

The worst part of this (as I said) is how the lying by the federal government has severely aggravated the financial damage which state and local governments had already caused with their own reckless spending. Instead of these governments being able to pull back from the "brink" of disaster, they were already "over the cliff" before they even realized what was happening.

There is still no indication that states have learned that they can't rely upon this phony "recovery" to "rescue" them from this fiscal catastrophe.
Grumley
...
written by Grumley, July 10, 2010
AND if you think the US Government IS successfully selling its bonds, consider that the US deficit has just hit $1 Trillion in the first 9 months of FY10. With the UK, Europe, and Japan completely broke, China would have to shoulder most of the load and buy these "new" US bonds. China which has allowed its currency to begin depegging and has moved all of their "current" bond holding forward into very short term maturities. So the Treasury expects us to believe that "someone" bought another 100% of China's total, current holdings of US bonds.

So the question is "who has $1 Trillion available" to buy these? The answer is NO ONE. This leaves only one logical conclusion; either "through" the giant banks for directly, the Federal Reserve has been buying these bonds (as in QE or "printing money").

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