Archive for September 2nd, 2010

Is fiscal responsibility (by individuals, not the gov’t, of course) killing the economy?

September 2, 2010

Punch line: As long as consumers (and companies) continue to deleverage, the economy will continue to sputter.

And, the deleveraging is likely to continue …

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Excerpted from RCP :Why the Recovery Lags, by Robert Samuelson, August 30, 2010

The logic of  Recovery Summer allegedly recognized that over-borrowed Americans would repay loans and replenish depleted savings, creating a temporary drop in consumer spending and economic activity.

But once savings increased and debt declined, consumer buying would strengthen. It would replace the Obama stimulus program. Hiring would improve; the recovery would become self-sustaining.

So, why is the recovery faltering?

There are many explanations: depressed housing; weaker-than-expected exports; cautious (rebellious?) corporations.

But consumers, representing 70 percent of the economy’s $14.5 trillion of spending, are the crux of the matter.

“Consumers are deleveraging (reducing debt) … and rebuilding saving faster than expected.”

In 2007, the personal savings rate (the share of after-tax income devoted to saving) was 2 percent. Now it’s about 6 percent. In the early 1980s, the savings rate averaged 10 percent.

The Federal Reserve reports that debt service — the share of income going to interest and principal payment — has decreased from almost 14 percent in early 2008 to about 12.5 percent, the lowest since 2000.

In the past decade, consumers counted rising stock and home wealth as “saving,” which rationalized high borrowing and spending.

Now, the process may work in reverse.

Since late 2007, lower home and stock values have shaved about $10 trillion from household wealth.

If Americans tried to replace most of this through more annual saving, consumer spending would remain weak for years.

Consumers are adopting a “defensive outlook,” they’re prone to “pare their debt” or increase “reserve” savings.

They aren’t “itching to resume old spending habits.”

Full article:
http://www.realclearpolitics.com/articles/2010/08/30/why_the_recovery_lags_106923.html

Posted in Consumer Confidence, Financial Crisis, Mktg - Consumer Behavior | 2 Comments »

Never Say Never to Wal-Mart

September 2, 2010

TakeAway:

Seventh Generation specialty products will now be available at Wal-Mart (and its broad, mainstream audience), as Wal-Mart boosts its “green” efforts by winning over a company that said it would never sell there. 

“We now believe that we can have a bigger impact by partnering with Wal-Mart than by shunning it.” 

Seventh Generation lowered prices across the portfolio so that they cost as much as or only slightly more than the leading national brand. 

To justify its decision, Seventh Generation explains that Wal-Mart’s social and environmental targets were specific and its reports seemingly transparent.

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Excerpted from WSJ, “Adversary’s Clean Start with Wal-Mart” by Ellen Byron, July 26, 2010

For years, Seventh Generation Inc. co-founder Jeffrey Hollender liked to say “hell would freeze over” before his company’s environmentally friendly household products would be sold by Wal-Mart Stores . He feels differently now.

Starting next month, Seventh Generation staples, including laundry detergent, dish soap, all-purpose sprays and disinfectant wipes, will be sold in about 1,500 Wal-Mart stores.

Five years ago, the world’s largest retailer began setting goals to reduce its energy consumption, cut waste and introduce more sustainable products.

To be sure, selling green products is also increasingly lucrative.

While many shoppers switched to cheaper labels during the recession, sales of household products billed as environmentally friendly have held up relatively well despite their premium prices. 

  • Sales of green household and laundry cleaning products rose to $557 million last year, having more than tripled since 2005.
  • Green products are still a niche category, however, representing only about 3% of the overall $19.9 billion household cleaners and laundry market.

Seventh Generation’s change of heart toward Wal-Mart came gradually.

Seventh Generation and Wal-Mart are both members of the Sustainability Consortium, a group of manufacturers, retailers, nongovernmental organizations and government officials that is developing tools and strategies to evaluate the environmental and social impacts of products’ lifecycles.

“Wal-Mart can move quicker than probably any government on the planet.”

Edit by AMW

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Full article: http://online.wsj.com/article/SB10001424052748704421304575383271764631764.html?mod=dist_smartbrief

Posted in Environment - Green, Retailing, Walmart | Leave a Comment »

Is Germany Ruining the Recovery?

September 2, 2010

Yesterday’s post – which suggested that Germany’s fiscal austerity is outperforming Obama’s ‘spend ‘til you drop’ program – seems to have piqued some interest.

As a follow-on, here are some highlights a New Republic article on the topic:

For months, top U.S. officials have begged the Germans to stay the course on their modest stimulus measures, fearing that a too-quick withdrawal would hamstring the European recovery and pose risks to the global economy.

But the Germans have stood firm, rejecting the administration’s Keynesian logic with rhetoric that can sound gratingly reminiscent of Republican talking points.

The Germans even dragged their feet over a stress test of European banks, complicating efforts to restore confidence in the continent’s balky financial system.

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Welcome to economic stewardship in the age of German parochialism.

For years, the Germans could be relied upon to play a stabilizing role in Europe, subsuming their national self-interest to lofty visions of continental solidarity.

But, over the last decade, as German leadership has passed to a younger generation less compelled by the war’s memory and unbothered by the Soviet menace, the Germans have ceased to view Europe’s safekeeping as their historical responsibility.

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The Americans and Germans spent a stretch of the spring debating the right time to close the stimulus spigot and start narrowing their deficits.

The Americans, haunted by the Great Depression, worried that countries would cut back too quickly and relapse into recession.

The Germans, haunted by their own interwar experience, worried that deficits would lead to a debilitating inflation.

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Goodbye to Berlin: How Germany became a thorn in America’s side, August 30. 2010
http://www.tnr.com/article/politics/magazine76973/america-germany-global-finance-conflict?passthru=N2FjMThhMmJmYjU3YzQ2YTQ2YWU3YTZkMTljYTFhNjU

Posted in Economics, Financial Crisis | Leave a Comment »