Upon closer inspection--the recent boom in business...

[CoffeeCat]

...may be due to companies drastically cutting prices to move products and services.

In effect, sales are up and more dollars are flowing to businesses. However, profits
are thin.

This is the linchpin--and the reason why unemployment isn't improving (despite this rosier scenario at
the Wall Street/corporate level). Increased sales don't always translate into growth--if your profit
margins are weak. This isn't a "comeback" or an "end to the recession". Business may be moving more
product and services, but this profit-cutting tactic is a last-ditch effort to survive.

If I owned a small business, laid off most of my employees and then slashed product cost to survive--I doubt
I'd be hiring anyone back at this point. I'd be hanging on by my fingernails and hoping that I could float on
significantly lower profit margins. I'm sure this is true across the board--from Target to Kellogg's to Wells
Fargo and Microsoft.

Does anyone else agree that this may be the reason for our current bipolar economy? On one hand, the economy
is hemorrhaging jobs, but on the other hand we've got good news coming from Wall Street and businesses (which may
or may not be the MSM and the corporatists disseminating fake silver-lining stories).

If this scenario is accurate--it doesn't bode well. How long can untold numbers of companies operate on the edge? This
spells additional business failures and closings--as well as continued unemployment, in my opinion.

Furthermore, if unemployment continues to worsen--consumers won't be willing to pay normal prices for many months--if not
years. This could cause a real crash, as many companies and retailers (big and small) can't make it by operating on such
slim profits.

I think it's important to inspect "good news" coming from the corporations and Wall Street. I may be off the mark, but
it's important to understand what's really going on--so we are prepared and informed--instead of being fooled by
rosy scenarios--that may not really be all that rosy.

[countingbluecars]

1. Companies are "drastically cutting prices"?

Could you give me some examples?

[CoffeeCat]

4. Here's one example...

Kellogg's has reduced the price of their cold cereals. I can usually find the cereal under $2 a box, which
is significantly lower than usual. Kellogg's also has $1.50/1 box of cereal coupons in the Sunday paper.
Also, Kellogg's has a current promotion--buy 10 Kellogg's cereals, and the company will send you a $14 voucher
for a free movie ticket.

This is one real-world example of a company using incentives, promotions and coupons to move product. However, Kellogg's
is clearly taking a hit in order to move their product.

Tide produces more revenue for P&G than any other product--$4 billion. However, sales are drastically down. In an effort to combat
lower prices, P&G has created a new, less-expensive Tide--Tide Basic. They're also offering $1 and $1.50 coupons which is nearly
unheard of. I've seen $1 coupons for the most expensive Tide, but they are rare.

I've seen drastically reduced prices at Walmart, Target and more loss leaders at local and national grocery-store
chains. If you pay attention to television and print advertising for large retailers--their main "hook" is
lower prices and specials.

Cash For Clunkers is also a price-reducing device. It's government subsidized, but moving product through cost reduction
is the basic tactic.

I've heard this lower-profits explanation floated by a few economists. And they weren't just referring to retailers.

I'll try to find some links.

[zbdent]

5. They have reduced the prices ...

but they've also reduced the product ...

[countingbluecars]

7. Thanks for the example.

I live in Northern VA in an area where prices always seem high. But you got me thinking. I will have to pay more attention and see what kind of price changes are happening.

[xchrom]

2. even outside of recessions -- we have a problem with driving down prices.

the american paycheck has bee under real assault since the seventies -- obviously more and more people begin to feel that over time.

stores like wall mart take advantage of the concerted effort to squeeze down the american standard of living.

recessions put a glaring and ugly light on the whole process -- chains like macy's -- which can afford to stiff it's producers ad infinitum because of the volume of units it buys -- drive down prices to attract consumers -- and drive out of business competitors, especially independantly owned businesses.

yes -- profits are thinner -- but we gage EVERYTHING in economies of scale -- so even with 'thinner' profits -- sales may go up over many regions or even globally -- and that's all that matters today to our 'overlords'.

[Coyote_Bandit]

3. Thin profit margins mean that

the business is able to survive and prosper because of high volume sales.

If you owned a small business you'd be sinking fast. As a small business you don't benefit from the volume discounts of your larger competitors. If they are taking thin profit margins then odds are you can't match their price and still turn any profit. You probably can't even have enough of a mark up to meet your administrative expenses.

We have built an economy that is ultimately unsustainable. Why? Because consumer spending represents two thirds of GDP - while disposable consumer income, wages and access to credit are declining.

In the long-term we'd be far better off to rebuild our infrastructure and manufacturing base than to try to rebuild this kind of economy. But that won't happen. We value wealth creation more than productivity and we don't want to get our fucking hands dirty. That kind of work after all is for the immigrants.

[girl gone mad]

10. 'Wealth creation' is a euphemism..

for wealth accumulation by any means possible, legitimate or otherwise. Other than that, I agree completely.

[TreasonousBastard]

6. Likely a lot of truth there...

but it's all too difficult to ferret out. Academic economists spend their lives analyzing government reports, financiers look for returns, analysts and economic and financial writers look to sell stories... Not many places have real information.

Real income has been declining for years, and that decline has accelerated lately. And you can't use your house as an ATM any more, so spending tends to be down a bit.

But, since our economy is consumer driven you gotta look at the basics, and housing starts is a good one. Not only does a family buy a house, but they have to furnish it, buy clothes washers and lawn sprinklers and stuff and spend a lot of money running it. There must be an economist around who came up with a multiplier that shows how buying a house can do some serious cash acceleration.

I've been curious for years about a "Lookin' Good" index. Somewhere around a quarter of the GDP is women's clothes, makeup, and other stuff like nail salons and hairdressers. Take a lot of plastic surgery and dermatology out of the health segment and throw it in Lookin' Good and you've got a really big number. I'm thinkin' this number goes up and down with the economy and follows women working and their incomes, but I know of no studies.

Anyway, yeah, lowering prices has always been a surefire way to increase sales and hope to make it up on volume. This was Wal-Mart's strategy all along until they had to come up with new ones. It's also a good way to get rid of inventory. Personally, I never liked price competition, though, since it always seems to beat up quality-- ultimately, you get what you pay for. Predatory pricing just hurts everyone.

[CoffeeCat]

8. I appreciate your thoughts...

...and insight.

I agree with you, that it's very difficult--even if you are en economist with official data in hand--to ascertain
what in the hell is going on with the economy.

It's a huge mystery! Doesn't that strike anyone as outrageously odd?

Is our economy healthy or not? Someone--who doesn't have a political agenda or a buck to make--answer the question honestly! We seem
to only get spin or the latest meme. How many times have we watched the media twist horrific economic statistics/news into positive
stories? It gets a person thinking...is this benign lies designed to fend off consumer fear? Or are we being kept in the dark
about a situation that the powers-that-be know will worsen drastically?

I want to know what is going on.

That's why I love reading what others post about the economy--and posting topics that stimulate discussion.

It's just very difficult to know what resources are truthful and what the reality really is.

That's...mind blowing to me. That we just don't know and that there is so much conflicting information out there.

[sendero]

11. I'm 100% sure....

...that....

"is this benign lies designed to fend off consumer fear? Or are we being kept in the dark about a situation that the powers-that-be know will worsen drastically"

... is EXACTLY what is happening. The government, and the corporate proxy media have no choice but to talk this up because if everyone knew just how bad it is, it would indeed make it much worse.

I don't fault them really, a slow descent is definitely preferable to fast and chaotic one.

[AdHocSolver]

12. The economy will not recover until 80 percent of what we BUY is made in the U.S. by U.S. labor.

Except for a few individuals, most economists who talk about the economy base their explanations and predictions on the premise of supply side economics. Anyone who claims that the economy will recover when the stock market recovers is assuming supply side economics and is spouting nonsense.

Supply side economics is the (false) concept that if you give the rich people lots of profits thay will create jobs. This country has given the corporate elite unbelievable riches and they used that wealth to get even richer by creating lots of jobs in China, at the same time that they have been eliminating jobs by the tens of thousands in the U.S. in order to boost the stock market.

The stock market is NOT the economy, rather it is a Ponzi scheme to separate the middle and working classes from their savings. The bailouts were designed, not to increase business and create jobs, but rather to bolster the stock market long enough for the wealthy to extract their profits before the REAL economy, which is based on JOBS, collapses.

How is the economy based on jobs? All economies are DEMAND driven. Demand can be defined as people with money to spend who actually want to buy something. In order for their to be demand (actual economic activity), buyers must have income to spend, and most people get their income from JOBS. For governments to be able to provide services, they must be able to collect income and corporate taxes. However, with millions of people unemployed and corporations offshoring jobs to avoid paying taxes, governments are being starved of revenue needed to provide services.

When the U.S. imports most of the goods it buys, the money spent on those goods leaves the country, a large amount of it to China. In a normal economy where 80 percent or so of the goods we buy would provide income to other Americans, who in turn would pay us for our output, thus circulating money WITHIN the U.S. economy, the money used to buy imports leaves the U.S., and to continue buying the goods we need, we have to buy on credit. Buying imports on credit, and not being able to earn an offsetting income through an amount of exports equivalent to imports, leads to a huge trade deficit requiring borrowing lots of money, most of it from foreigners, which leads to more debt.

At some point, foreigners are deciding that loaning money to the U.S. is a losing proposition. The value of the dollar is decreasing which is why we are seeing inflation creep, as prices are slowly rising on imported goods. (Some retailers are dropping prices to get rid of excess inventory. That is temporary and we will see prices rise again as inventories drop back to where they correspond to demand.)

Most people make the mistake of thinking that they can't understand the economy because they can't correlate what the economists and corporate bigwigs spout about economics. The reason what they say is not understandable is because most of it is nonsense. The verbiage, the charts and graphs, and the proposed solutions are all nonsense. They are designed to confuse and obfuscate what is really going on.

As an example, a corporate executive recently claimed that the economy will recover when manufacturing is 20 percent of Gross Domestic Product (GDP). NO! That is supply side economics rearing its ugly head. The economy will recover only when 80 percent of WHAT WE BUY is produced in the U.S.A. by American labor. Then, and only then, will we be able to export enough goods and services to eliminate huge trade deficits and the huge debt that we incur because of it.

To bring back jobs to America, the trade agreements (designed by the corporate cartels) such as NAFTA, the WTO, the IMF, and the World Bank have to be overhauled or eliminated to level the playing field so that companies who want to manufacture goods in the U.S. can compete with the multinational cartels. The term "free trade" is an advertising slogan for the corporations. What we have is corporate controlled trade. Import restrictions have been used effectively by the Chinese (with corporate collusion) to build their country into an economic powerhouse while corporate designed "free trade" is collapsing the U.S. economy.

[truedelphi]

9. Very good points. However, nothing I have

Noticed about the movers and shakers, ie Bernanke and Geithner, indicates that they consider common sense type analysis of the situation to be pertinent.

Another thing is that the trillions bequested Wall Street should enable even the Wall St types to sustain a short lived recovery. Whether it will fall apart in six months or three years is hard to say. But there is no "there" there.