Relevant and even prescient commentary on news, politics and the economy.

What Fiscal Stimulus needs to look like

Fiscal stimulus? All sorts of numbers being tossed around, not sure where they are coming up with them from. But, if we are looking to drive a consumption based economy, it seems to me we have to get money into the hands of the most consumers on a regular basis.

Here is what has to be made up using year 2000 dollars. Keeping the same ratio of income for the top 1% as in 1962 (just seemed like a nice year to pick), the share per person for the bottom 99% (of total population) in 2005 goes from $24,515 which is just under 120% of poverty, 4 people ( 2007 tables) to $28,274 or just around 140%. It’s a $3759 increase. That’s the number to fix the problem as I see it. Or, one wage earner at $113,096/yr. Close to the top 1% number for 1962 of $114,711.

The $3759 times 4 (four people in a family) is $15,036. That’s health insurance of the non-high deductible type plus an extra $3000 for a retirement plan for this family of 4. If they are a young family, they could probably split that $3000 putting half in retirement and blowing the rest. Imagine 99% of the population in 2005 blowing $1500 just because they had it to spend. Real, in the hands, cash money.

Or look at it this way, we shifted the “risk” of health coverage and pension from the company to the employee, but not the $3759 per person that would need to go with it. You know, that old increased reward for increased risk meme of the free market capitalist system. Instead it went to the top 1% such that they have $681,370/yr/person. That’s $2,725,480/yr (family of 4 you know). And that is more than double the threshold for the top 0.1% excluding capital gains (Saez data). BTW, there were 2,969,720 people in the top 1%.

Tags: , , Comments Off on What Fiscal Stimulus needs to look like | |

Opus 1: A Discussion on taxation

My hunt for Obama’s econ advisor lead me to a paper that incorporates a review of a book: Does Atlas Shrug? The Economic Consequences of Taxing the Rich. It caught my attention because the paper is written by a tax lawyer.: Reuven S. Avi-Yonah, the Irwin I. Cohn Professor of Law and director of the International Tax LL.M. Program… He also served as consultant to the U.S. Treasury on tax competition and OECD on tax competition, and is a member of the Steering Group of the OECD’s International Network for Tax Research and chair of the American Bar Association’s Tax Section Committee on Consumption Taxes.

I never really thought about it, but laws are the means by which we create taxation. They do reflect our reasoning. So, maybe we need to consider law arguments as we discuss taxes?

This will be presented in multiple parts in order to not hog the blog space here (or bore those not interested). My intent in presenting this review is to move the question of taxation beyond the simple rhetoric. We are at a time that is being implied will be a mark on our historical time line of national personality; the coming presidential election. For the best of our personality to come through, we need more than focus group tested conversation about money. We need to do the work to not only understand the physics of money but, also the philosophies of money. We have experienced 3 distinct approaches: pre-income tax, New Deal and Reaganomics. Time we start being responsible for the decisions made and look at what we decided, how we justified them and what those decisions gave us. Now is the time to ask: Just what the hell was I thinking here?

The paper is actually a discussion by Mr. Avi-Yonah that uses a review of Does Atlas Shurg for his lead in to his title: Why Tax the Rich? Efficiency, Equity, and Progressive Taxation. We here at AB have tossed around the short answer “because the richer you are the more benefit you get”. Mr. Avi-Yonah sets up his paper’s question:

“Thus, the question of whether high marginal tax rates come with an unaffordably high cost to the U.S. economy remains unsettled. Does Atlas Shrug?,…attempts to answer this question.

Part I begins with an excellent historical survey by W. Elliot Brownlee of the rates facing the rich from the beginning of the U.S. income tax in 1913 to the present. He indicates that effective rates during the high marginal rate years of World War I reached 15.8%, and that during the high marginal rate years of World War II they reached an astonishing 58.6% in 1944. After the war, while the top marginal rate remained extremely high at 91%, the effective rate for the rich declined to 32.2% in 1952, then 24.6% in 1963, rising to 28.9% when Ronald Reagan took office and declining to 22.1% following the 1986 tax reductions. The conclusion drawn by Brownlee is that the rich can be taxed at very high effective rates during times of national emergency, but that at other times their political clout ensures that effective rates are much lower than marginal rates.”

Well, guess we don’t need to worry about the nominal rates, they mean squat. But the question; do high rates cost us? The summary answer:

“In general, they provide a mixed answer… While there is some evidence of behavioral responses, it is quite limited and seems to depend crucially on the authors’ chosen methodology. Importantly, most of the findings of behavioral response relate to the use of various tax avoidance techniques—and even there the evidence is mixed, with some obvious techniques being used less than they should be in a world in which tax minimization is very important to the rich. Real behaviors, such as labor and saving, seem much less affected by taxation. This distinction is important because while both tax avoidance techniques and real behavioral changes cause deadweight losses, the former can be partially prevented by changing the law, while the latter are less amenable to legal change since one cannot force the rich to work or save more.”

As to the evidence, Mr. Avi-Yonah states that the 9 studies are reported in 3 groups. The first being limitations of past research such as noted by Goolsbee. The second group:

“…support the view that behavioral responses by the rich to taxation are quite limited. A study by Moffitt and Wilhelm investigates the labor supply decisions of the rich based on responses to the 1986 Tax Reform Act and finds essentially no responsiveness of the hours of work of high-income men to tax reductions…But the studies also suggest that high-income men are unlikely to decrease hours worked as tax rates go up…Other studies in this group suggest that even financial behaviors, which are less “ real,” and therefore more likely to be tax-motivated than labor or saving decisions, do not respond much to taxation.”

He specifically notes evidence that portfolio choices do not significantly change, there is not “judicious” sheltering of capital gains and that “inter vivos giving” are “much lower” than would be expected if “households were taking full advantage of this estate tax avoidance technique.”

So far, nominal rates mean squat and the rich don’t really play the tax rate game as has been implied by those offering tax rates as an excuse for our sorry condition. But, they do play:

“The third and final group is made up of studies that do find some behavioral responses to taxation. For example, Auten, Clotfelter, and Schmalbeck find that the current tax system does stimulate some charitable giving by the wealthy, compared with a system in which contributions are not deductible, but that the sensitivity of giving to tax changes is smaller than suggested by previous researchers. They also find that current law does encourage the wealthy to engage in elaborate estate tax arrangements associated with their charitable donations. Alm and Wallace examine a wide range of taxpayer reporting decisions by the rich in the wake of tax law changes and suggest that they show increased responsiveness due to their larger control over the form of their compensation. Finally, Carroll, Holtz-Eakin, Rider, and Rosen investigate the behavior of entrepreneurs in response to tax rate increases and conclude that individual income taxes do have a large negative effect (a five percent increase in marginal tax rates decreases mean capital expenditures by approximately ten percent).”

My theory on this last info, they like to make sure they settle their conscience in the end but only if they get a break and if they earned it with their own business they will sacrifice the business to keep up the income.

“I would also add that most of the evidence for behavioral responses in the book relates to tax avoidance strategies (e.g., charitable giving techniques, shifting income from corporations to individuals, and the timing of receipts), rather than to real activities (labor and saving decisions).”

Mr. Avi-Yonah closes this part of his argument noting that the book did not address the issue of illegal tax avoidance:

“Slemrod is not to be blamed for not focusing on this issue because no recent data exist, but it is high time for Congress to study the question of illegal tax evasion by Americans.”

So, if the nominal rates don’t matter as the tax code is currently set up and the rich don’t respond to higher rates by working less or lower rates by working more and they will cheat the game to the benefit of them self, then the question of “why” and “how much” tax needs a reasoned answer verses a mechanized answer. We have to justify our taxing with words and use the research to tell us if our reasoning is getting us to our goal. We have to accept that money is and does as we say it is and will do. It is the entity created in our own image. It is a medium of personal creative expression.

To be continued…

Tags: , , Comments (1) | |

Moody doesn’t like the US

From the latest Financial Times:
Moody’s says spending threatens US rating

The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moody’s, the credit rating agency, said on Thursday.

In its annual report on the US, Moody’s signalled increased concern that rapid rises in Medicare and Medicaid – the government-funded healthcare programmes for the old and the poor – would “cause major fiscal pressures” in years to come.

Steven Hess, Moody’s lead analyst for the US, told the Financial Times that in order to protect the country’s top rating, future administrations would have to rein in healthcare and social security costs.
“If no policy changes are made, in 10 years from now we would have to look very seriously at whether the US is still a triple-A credit,” he said.

Cut them taxes baby! Yeah!

Tags: , Comments Off on Moody doesn’t like the US | |

Austan Goolsbee, Obama’s Econ Man

T-bone got me thinking in his response to my comment about Obama. Well, as a good AB’er, that meant I had to go a hunting. In this case, specifically for Obama’s econ advisor: Austan Goolsbee.

This lead me to an article by Austan Goolsbee, It’s Not About the Money. Wow, a man thinking like me. This lead me to a book: Does Atlas Shrug? The Economic Consequences of Taxing the Rich. Edited by Joel B. Slemrod which is a collection of papers presented at an October, 1997 conference in Michigan of which Mr Goolsbee was a participant.
(scroll down to mid page.) This lead me to a review of the book which I will post on later. (Yes, I’m still playing with the income data stuff.)

As a sample of Mr. Goosbee’s thinking I pulled this from his paper’s introduction:

One of the liveliest areas of debate of the last twenty years in public economics has been the argument over the behavioral effects of marginal tax rate changes.

The methodological approach in what I term the New Tax Responsiveness (NTR)literature is to control for the unobserved determinants of taxable income by using “natural experiments,”….The influence of the NTR literature such as Lindsey (1987) and Feldstein (1995a) is undeniable and, if correct, has profound implications for tax policy and revenue estimation. The backbone of the NTR approach, however, is this assumption that lower income people are a valid control group for higher income people—that the change in income of the two groups would have been identical if there were no change in taxes. If this assumption is false, existing estimates may have significant biases.

And his conclusion:

After ten years of finding large elasticities of taxable income with respect to the net of tax share by using tax changes as natural experiments, the NTR literature has had a large impact on the conventional wisdom regarding progressivity and the efficiency loss of high marginal tax rates. I argue, however, that the results from these papers are based on the faulty assumption that the very rich differ from other income groups only because they have different tax rates. Independent data on several thousand high-income executives as well as on other prominent rich people show that even the moderately rich are not a valid control group.

So what’s the up shot? Well, I’m still not sold on Obama, but then I’ve never not had him on the list. I like his econ advisor from the little I read. He likes comedy! (See Other interests)
He is dedicated to his profession. He knows how to speak:

…a prestigious New England preparatory school, Goolsbee became one of the most decorated competitive speakers in the country. In 1987, Goolsbee won the National Forensics League national title in extemporaneous speaking and finished second in original oratory with a speech on the SAT entitled “Right of Passage”

Think he may be Obama’s secret to his oratory ability?

He thinks deficits matter. He thinks companies have a morality problem:

The evidence shows that companies are particularly likely to raise prices when the government is footing the bill… It’s not your grandpa’s moral hazard anymore.

Also here he tackles the 529 savings plans problems.

He seems to be hangin’ with a crowd that thinks there is a problem with just focusing on tax rates as policy for moving an economy. Although he also seems to focus a lot on the internet and taxes. This appears to be his “thing”? In doing a quick look at some of his work, Obama’s current econ plan appears to be totally Mr. Goolsbee’s ideas. I have no problem with this. It suggests that with Obama, we would actually get people who’s qualifications actually match the job assigned. Though I feel confident with the top 3 dems we would see properly fitted personnel.

Tags: , , Comments Off on Austan Goolsbee, Obama’s Econ Man | |

FYI on National Health Insurance

Science Friday aired a show on 12/14/07 discussing national health insurance.

Guests were:
Uwe Reinhardt James Madison Professor of Political Economy,
Princeton, New JerseyJ.
Fred Ralston, Jr Chair, Health and Public Policy
Committee American College of Physicians, Fayetteville, Tennessee
Donald Berwick President and Chief Executive OfficerInstitue for Healthcare Improvement, Cambridge, Massachusetts
Here is a real example (as of 12/17/07) of just how convoluted the payment system has become:

Just got an EOB back from Humana. I am out of network with Humana but in-network with Multiplan (b/c they bought PHCS). Humana discounted my services stating that “I am not in-network with Humana but I have accepted a discount because of another contract”. Then after this discount they applied the out of network deductible and out of network co-insurance (60%). Had front desk call Humana to find out what contract they were discounting from. Humana told us Multiplan. Called Multiplan, they said that Humana is using Multiplans fee edits but they shouldn’t be applied to this patient b/c it is not a Multiplan member. Confused? Me too. Last I heard from my Front desk was that “they” will correct it if we send: new HCFA, invoices, insurance card, and EOBs

EOB = explanation of benefits

Tags: Comments Off on FYI on National Health Insurance | |

In the Beginning there was Income

As noted in my last post, I have been playing with income data. I believe that for us to be able to properly understand just where we have been and where we are going, we need to look further back than say the 50’s through Reagan’s time. That is, if the data is around. I view the Great Depression as a defining point in this countries economy, kind of like BC vs AD. I’m not convinced that the 90’s were all that good as far as policy for the masses. Sure we had a boom, GDP went up and the budget was looking better, but the Clinton’s come from the “conservative” or for the rest of the world “neo-liberal” side of economic policy. As much as his time period produced faster growth than the 2 prior presidents and the current one, it was not what we had seen in the past.

At the same time, income inequality rose by more points than through the Reagan/Bush terms. Specifically 4 points in 12 years verses 6 points in Clinton’s 8 years. It is to say, the Clinton’s come from a side of management that is closer to Reagan/Bush than Roosevelt/Kennedy. (This link gives an alternative review of Clinton’s policies.) Thus, to see what true progressive policy results look like we need to go back to a time before Roosevelt and then follow the results going forward to see the changes.

This post is to present the basic info. I will break it out in later posts. I used BEA table 2.1. They were kind enough to include a conversion of disposable income to 2000 dollars. This is why it’s in 2000 dollars. I have found a site that will convert any year to any year and may play there too. I used the ratio for each year to the 4th decimal place to convert the other numbers. This is the chart of the chaining variable as a percentage of the 2000 dollars. (nominal/chained)

I used data from Professor Saez for the share of income. It’s a big file.
This table is of the share of income to the top 1%.

This brings us to the results. First is the nominal.

This is the chained picture.

I’m not going to say anything now. But I do give you these two charts because, well…we’re talking income here. Specifically two groups; the top 1% and everyone else.

Adendum: I apologize for the dates on the charts. They did not transfer well. But, you are seeing each year of each decade starting with 1929. As to the last two charts you are seeing the nominal against the chained in 2000 dollars in each chart. One being the top 1% group and the other being the bottom 99%. They’re in billion’s of dollars.

Tags: , Comments Off on In the Beginning there was Income | |

It’s the big one honey, I know it…

I’ve been doing some numbers concerning personal income. Breaking out share of income, savings, GDP, etc based on BEA data and Saez’s data. I’m playing with it, have converted it to year 2000 dollars and will be looking at per capita relations too. Even thinking of converting it all to 1929 dollars. I plan a few posts on it all.

But, considering the post today concerning the dollar, I thought these two charts would be of interest. These two charts are in 2000 dollars. There is an interesting hump around WW 2, I’ll get to that in a later post. But for now, look at the 3 lines and pay attention to what crosses what.

Income vs Consumption 1929 to 1962

Now, look at this chart.

Income vs Consumption 1963 to 2005
See anything of interest? Something around 1996? Now, Sherman, set the WABAC machine to 1929 and look forward.

Tags: , , Comments Off on It’s the big one honey, I know it… | |

More Stupid Tax Code messing around

A few commenters of my last post suggested that picking at the tax code can create big problems if you don’t know what you’re talking about. I agree. Why mess with what is working as evident in the data continuously collected and reported concerning the economy. But, in 1981 they did mess with it and in a very big way and it hasn’t stopped. As the saying goes “everything changed”. Even under Clinton the share of income to the top 1% rose 6 points.
To recall, my point is that it’s not just the rates that are the problem, it’s the code.
One comment got me looking further.

Save the Rust Belt
“In general, the attempts by Congress in various bills to limit the deductibility of executive compensation caused the flood of executive stock options, and created a much bigger mess “
From a review by Peat, Marwick, Mitchell & Co.

The Economic Recovery Tax Act of 1981 is the most comprehensive tax reform
since 1954.
It affects virtually every financial planning decision. The Act creates a “new” type of stock option known as an “Incentive Stock Option” under which favorable tax treatment will be afforded to the option holder if certain conditions are met. Under current law, employer stock options are not entitled to preferential treatment.
Observations
The incentive stock option will have a significant effect on compensation planning
for all companies, and these rules may be applicable to options already exercised in 1981. Incentive stock option plans will probably become the cornerstone of executive compensation plans involving capital accumulation.

(Within this report are the changes related to the savings and loan mess. Considering today’s subprime problems, it is rather instructive as it relates to learning from history. Start on page 39 of the document.)

Thus, it was not the messing around that created stock options as a preferential means of payment. In the 1986 messing around they: eased the rules for exercise of Incentive Stock Option (ISO).

But, how was this 1981 act being portrayed by the CBO? Baseline Budget Projections for Fiscal Years 1983 – 1987 Report February 1982

The CBO baseline economic forecast shows an early end to the current recession and an acceleration of economic growth following the July tax cut.
Baseline revenue projections assume no change in current tax laws,… Under the CBO baseline economic assumptions, revenues are projected to rise from an estimated $631 billion in fiscal year 1982 to $882 billion in 1987. This represents an average growth of 6.9 percent a year, compared with an assumed average growth in nominal GNP of about 10 percent a year for the projection period. As a consequence, revenues as a proportion of GNP are projected to decline from 20.6 percent in 1982 to 17.7 percent in 1987—the smallest ratio since 1965.

Under current tax laws, the greatest growth in revenues will occur in social insurance taxes and contributions… The share of total revenues raised from this source will increase from 33 percent in 1982 to 38 percent by 1987… The share of total revenues raised from individual income taxes would decline from 47.5 percent to 45percent. Corporate income taxes under current laws and CBO’s baseline economic assumptions are projected, to increase by 46 percent, … and to maintain its 8 percent relative share of total revenues. Revenues raised from excise taxes and other sources are projected to remain at about the same level during the projection period. As a result, their relative share of total revenues would fall from 11 percent in 1982 to 8 percent in 1987.

How did this all work out? THE CHANGING DISTRIBUTION OF FEDERAL TAXES: A CLOSER LOOK AT 1980 Staff Working Paper July 1988

As reported in the earlier CBO study, total effective tax rates (the ratio of taxes from all four sources to family income) rose between 1977 and 1984 for the 10 percent of families at the lowest end of the distribution and fell for the 10 percent of families at the highest. Overall, the distribution of total federal taxes became less progressive.
Between 1977 and 1980, the total effective tax rate for all four taxes combined declined for the 20 percent of families in the bottom of the income distribution and generally rose for the 50 percent of families in the upper end, except for the 10 percent of families with the highest incomes. Total effective tax rates for other family income classes changed little between 1977 and 1980.

Between 1980 and 1984, the total effective tax rate for all families taken together dropped noticeably, from 23.3 percent in 1980 to 21.7 percent in 1984. The decline was not uniform across all income classes, however. Effective tax rates rose for the 30 percent of families at the lowest end of the income distribution and fell for the 70 percent of families in the upper end, with the size of the reduction increasing with family income. The 10 percent of families at the highest end of the distribution had both the largest percentage and the largest absolute decrease in effective tax rates.

The changes in effective rates under the individual income tax resulted largely from the Economic Recovery Tax Act of 1981 (ERTA). ERTA substantially cut statutory tax rates and increased allowable deductions, but it failed to offset the effect on low-income families of an inflation-induced decline in the real value of personal exemptions, zero bracket amounts (standard deductions), and the earned income credit.

By 1988, the distribution of combined federal taxes is projected to become more progressive than in 1984, but to remain less progressive than in either 1977 or in 1980. Although the combined effective tax rate for all families taken together is expected to drop slightly from 1980 to 1988, total effective federal tax rates are projected to be higher for families in the bottom half of the income distribution and lower for families in the top half. The largest reductions between 1980 and 1988 will be for the 1 percent of families with the highest incomes.

The question I guess is: did they know what they were doing? I suppose it depends on whether you think this results we have been living with since 1981 was intentional or not.

Just to cover the talking points:

The share of taxes paid by the 10 percent of families with the highest incomes rose by between 1.0 and 1.5 percentage points between 1980 and 1988. The increase in the share of taxes paid by this group resulted from a growth of nearly 3 percentage points in their share of pre-tax income between 1980 and 1988, more than offsetting the decline in their effective tax rate.

We changed everything.

Tags: , Comments Off on More Stupid Tax Code messing around | |

It’s the tax code stupid!

One of my issues with our economy and the shift in share of income has been the tax code. I have consistently stated that something other than the tax rate changed in the code back in 1981 or so when the first change took place. Labor went from being an asset to a liability and thus the rush to reduce all cost related to employees. Messing with the rates won’t do it. In fact, during Clinton’s term the share of income to the top 1% rose 6 points. It only rose 4 points with Reagan/Bush.

Well I was right…sort of. Bill # H.R.3876:

To amend the Internal Revenue Code of 1986 to limit the deductibility of excessive rates of executive compensation.

10/17/2007–Introduced.

Income Equity Act of 2007 – Amends the Internal Revenue Code to: (1) deny employers a tax deduction for payments of excessive compensation to any employee (i.e., more than 25 times the lowest compensation paid any other employee); and (2) require such employers to file a report on compensation paid to their employees with the Secretary of the Treasury.

This will be put in under

:(a) In General- Section 162 of the Internal Revenue Code of 1986 (relating to deduction for trade or business expenses) is amended by inserting after subsection (h) the following new subsection:

So, back in 1986 when they raised the rates they also allowed the top to shift the income they were paid so that it would be taxed less. Yup that was real “fair” sharing of the Reagan debt.

It’s not just about rates and it never has been. It is about definitions, and this makes me wonder what else is not in that tax code that use to be. All this bickering about entitlements, and the transfer of income, and welfare etc, etc, etc is just smoke and mirrors. The truth is we can solve our problems as soon as we go back to (return to the pre 1981 code) making it more profitable for the company to pay the help as oppose to keeping it for them self. And when I say for them self, listen to the big CEO’s refer to the company as their company! It also means that any arguments suggesting there is a free market idealism practiced in the labor market are wrong. What is part of determining what a fair wage should be comes from the sections of the tax code that control the definitions of taxable income to whom.

I still believe there were things done in the first change. You can read the reps statement here.

Update: To be clear, the bill linked to here will undo the tax break of 1986 that promoted paying excessive income to the upper company employees. It is a start toward removing the economic royalty of our nation.

Tags: , , Comments Off on It’s the tax code stupid! | |

Discretionary Income? Maybe, but it ain’t being spent (or maybe it already is?)

I am member of AAII (American Association of Individual Investors). They send out their Investor survey results every week. This weeks:
Bullish 25.58% Long term avg. 39.3%
Neutral 21.71% Long term avg. 31.9%
Bearish 52.71% Long term avg. 28.8%

We have all read exuberant stories about how wonderful Black Friday was. The WSJ is doing it’s part to promote sales prior to the event:

For those seeking a second opinion on the gloomy holiday spending outlook, here it is:A survey of 2,570 Americans with household incomes of more than $35,000 suggests that the expectations of weak holiday sales are overblown.
“The doom and gloom is overstated. Unemployment is low. Real incomes are healthy,” said Michael J. Silverstein, a BCG senior partner. “Consumers overall predict that this holiday season will be just as good, if not better, than last.”

Unfortunately this is all based on a month old survey. A time when the $3.199 I just paid today to fill the oil tank did not exist. The schizophrenic side of WSJ had this to say the next day, 11/16/07:

Fred Crawford, managing director at Alix Partners, a turnaround consultant, says: “The reason so many retailers are coming out aggressively is that they’re expecting a bad season.”

There is a nice little chart of the expectations of the big retailers with this article. They’re not to excited.

I asked at a forum only for florist and related business: How’s it going now that Thanksgiving is past?
Some responses:

“We hear a lot about how bad the US economy is doing but things are’nt great in Europe either. Retail suffered a lot in 2007 and Ireland was no different .Some times during the year I felt like tearing my hair out . It was really quiet during the summer but picked up from Sept and Nov was brilliant for me.”

“Actually, it has been the slowest Sept. and Nov. that we’ve ever had. As I said in a previous post, maybe our moving has confused customers or it’s the economy. It is really scary to have just made a hefty investment in a new building along with moving and renovation costs.”

In our area, we can tell that gas prices are affecting sales – both holiday & everyday.We filled up 2 vans yesterday at @ 3.15/gallon (OUCH!!). My local tracking trends tell me that when customers have less money to spend, they are looking for more ‘longer lasting”, “higher perceived value” items. Generally for us, that means that or fruit baskets business greatly increases, and often our plant/poinsettia business increases. We will be cautious in our fresh flower buying….staying ahead of the game, but not in too deep!

Sales in Sept. were in the expected range but October was down significantly. November is not too bad but not great. Sure hope December brings better things or I will have to lay someone off.

Our November so far, compared to the last year’s:
Local sales: up 17%, Wire-in: down 25%, Wire-out: same. Actually, it was disappointing. We usually do 20-30% better than last year’s numbers; this year is our 3rd year beginning July. The problem was the average sales price. Compared to the last year, this year’s average sales price in November is 10% down. It’s so clear. Our customers are cutting back the expense. We will use this info to adjust our price point for Christmas, which is more important than November sales.

There is an even sadder story by a shop owner of 26 yrs in Kansas who bought houses, put kids through college etc, etc and is now thinking of closing because they can’t make it.

We used to have a full business district, 3 clothing, 1 shoe, 3 hardware, 8 restaurants, 2 convenience stores, 2 pharmacies, 2 flowershops, 2 gift, 1 childrens store, 2 grocery, Dollar General, Duckwalls, and 1 lumberyard. We are down to me, 1 gift, 1 pharmacy, lumberyard, 1 grocery, Dollar General, 1 convenience, 4 restaurants. I have heard that Duckwalls and the gift store are going out of business by Jan 1. We are down to one mortuary, used to have 3. MY TOWN IS DYING! Small town america is dying.

I worked in high school for a small family retail business, and the owner noted that such businesses were always ahead (by 6 months) of the national rhetoric as to the state of the economy. My shop peaked in the summer of 2006. This year even credit card sales are down where as last year only cash was off but credit card sale were up. We were off 3.4% for the year until August hit. We are now 7.8% off. People are not even trying to spend “discretionary income”.

Here is one article quoting the National Retailers Federation concerning Maryland:

‘‘Our annual survey showed our members to be very pessimistic this season,” said Thomas Saquella, president of the 600-member state retailers group. One-third of business executives who responded to the Maryland survey predicted sales decreases during the holiday season, compared with only 7 percent in 2006. Only one-third believed that third-quarter sales provided some positive momentum for the holiday season, compared with two-thirds last year.

Referring to the accuracy of prior surveys:

If the projections are that accurate this year, this holiday season would see the smallest gain since 2002. Sales that year increased nationally by only 1.3 percent, according to the retail federation.

Bloomberg had this to say yesterday:

U.S. consumers spent an average of 3.5 percent less during the post-Thanksgiving Day holiday weekend than a year earlier as retailers slashed prices to lure customers grappling with higher food and energy costs.

And, last but not least I dropped of the shop van at my friends repair shop this morning making an appointment for the personal van. He had today and ½ of tomorrow scheduled. The rest of the weekly chart was empty. He started building a new house this past March. Now he’s feeling the pinch cause he can’t sell his current house. The new house would have been paid in full if he could have sold the current house. Best laid plans….

My sweet keep complaining about being poor (I told her she had to choose between Celine Dion and 1 of her weeks at the beach). I keep telling her we’re not poor, we’re broke. She responds with: “And why did we buy this flower shop?”

Tags: , Comments Off on Discretionary Income? Maybe, but it ain’t being spent (or maybe it already is?) | |