The friday after Thanksgiving has traditionally served as an excellent 'barometer' of retail 'holiday' sales levels ...
(snip)"Perhaps the most alarming impact will be on the consumers of the rich world, whose confidence in the future will be vital in preventing recessions turning into depressions. Next week marks the traditional beginning of the US Christmas shopping season with “Black Friday”, the day after Thanksgiving when stores see some of their heaviest business of the year.
The term has traditionally been taken to mean the date that retailers’ finances went into the black, or the heavy road traffic that used to ensue from millions of Americans making pilgrimages to worship at the retail shrine. But if the dire news from across the US economy has sunk in even among the world’s most optimistic shoppers, it might instead mark another dark day for the US economy.
This week, perhaps the clearest possible signal of the trouble that US retailers are in came from their counterparts on the other side of the Atlantic. Marks and Spencer, the store that above all others defines the British high street, announced a highly unusual snap one-day 20 per cent sale. Some described it as a “guerrilla raid”, but in truth it was more like the return of fire in a skirmish with its retail rivals, which had already announced pre-Christmas sales.
But while one-off cuts in prices might tempt consumers to spend, economists warn that people might merely begin to expect that prices will continue to fall in the future, and so hold off spending. The US economy in particular is likely to see headline inflation go negative next year, as the effect of the huge fall in oil prices takes hold and the American housing bust drives down the cost of renting and owning homes.
In theory, such deflation could be good for the economy, as it releases money for consumers to spend on other products. But as Andrew Brigden of Fathom Consulting warns, deflation can also take a malign form. “The risk is that people don’t spend because they think prices will be yet lower in the future and that sets off a negative spiral,” he says.
Temporary drops in prices are unlikely to have that effect. But Mr Brigden thinks the combination of falls in commodity and house prices with weak demand means that US headline inflation is likely to go negative next spring and stay that way for months, dropping as low as minus 3 per cent. “When deflation goes on for the best part of a year, expectations are more likely to become entrenched,” he says.
Certainly any consumers watching the flow of news this week cannot have helped but wonder. Yields on two-year Treasury bonds, an indication of where investors think that the US Federal Reserve will set interest rates over the next 24 months, dropped below 1 per cent to their lowest level since the two-year bond was invented in 1976. British bond yields hit their lowest since the second world war"(snip)
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