The gloomy reality of the US economy was well summed up by the latest Beige Book of economic and business anecdotes across the country from the Federal reserve; but the reality of life for US consumers and retailers was summed up by Wal-Mart which is adopting a brutal, deep discount approach to selling this Christmas
The Fed’s Beige Book for the two day meeting starting November 3 was the less dramatic, saying:
"Reports from the 12 Federal Reserve districts indicated either stabilization or modest improvements in many sectors since the last report, albeit often from depressed levels."
"Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered."
The collection of anecdotal reports on the economy from its reporting districts noted improvement in two of the hardest hit areas — residential real estate and manufacturing.
In fact, if anything, it emphasises the rightness of the warnings to the market from Fed chairman, Ben Bernanke and from Fed rate setting meeting minutes, that the recovery won’t feel like one, and that this is why the key interest rate will remain at its current record low level (0%-0.25%) for an "extended period of time".
It wasn’t as bad as previous Beige Books this year have been, but there were few redeeming features in it for investors, consumers and businesses to point to as strong signs of recovery.
The central bank gave a grim assessment of commercial real estate, which is widely seen as one of the big remaining trouble spots for the still-struggling financial sector, especially banks across the vast regions of the US where the majority of the 99 failures so far this year have been concentrated (especially in Georgia, Illinois and Nevada)
Consumer spending remained fitful: no longer falling, more stabilised, but no prospects for growth. Seeing consumption accounts for more than 66% of the US economic growth each year, that’s bad news for the economy.
"Consumer spending remained weak in most Districts since the last report, although some improvements were noted. Looking to expectations for holiday sales, Chicago anticipated improved sales, while Philadelphia retailers expected consumers to limit spending.
"However, Third District merchants also noted that store traffic increased recently. Atlanta reported that two-thirds of contacts expected flat or declining sales over the next three months."
The Beige Book was finished around October 13, just before Wal-Mart, the giant retailer, started unveiling its ideas for Christmas and revealed the new reality for US shoppers and shops.
It’s a price war, much bigger and deeper than we have seen in recent years.
After wresting control of food and toys from smaller rivals in the last few years, it has been attacking healthcare, clothing and electronics.
This Christmas its books, with Wal-Mart taking on Amazon, with the likes of Target and other giants starting to join as all eye a depressed Christmas season.
Not even Amazon’s online strength, the heart of its business model, will be enough to protect it from Wal-Mart which has adopted some of its smaller rival’s ideas to boost its net offerings this year.
Wal-Mart has spent the past 10 days unveiling new price and marketing initiatives for the Christmas selling season.
"It is stepping up its price cutting: it boosted sales a year ago in the run up to Christmas by concentrating on toys, some electronic products and clothing: this year its more toys, lots of books (including ones not published yet), food, toys and a range of other products.
Wal-Mart’s moves started appearing a week ago and have swelled, with the reasoning explained to analysts and the media in a two day briefing this week.
Wal-Mart has already rolled out aggressive price cuts ahead of the holiday season.
It is offering more than 100 toys for $US10 each and it has cut prices on highly anticipated hardcover books by 60% or more, igniting a price-cutting war with Target, Amazon, Borders and Barnes and Noble. Those cuts start tonight, our time.
This week it cut the price of minced beef and some board games. More toys will be added to the price cutting list. Wal-Mart has started selling discount mobile phone plans. It has healthcare centres and is selling generic drugs at deep discounts.
Like Amazon it has started allowing select retailers to sell goods on its site — a tactic used by Amazon. Last week it revealed plans for home delivery of health and beauty items.
It is already the Number one retailer in the US in food and toys (and the world). Statements from executives in the past week reveal a huge expansion of its online business, while selling more high profile brands, such as Apple’s iPhones.
The reason for the Christmas push isn’t hard to understand when you look at a survey by the National Retail Foundation, a trade group.
It said around 43% of consumers surveyed on their Christmas shopping intentions, said they would be driven by discounts, with the survey also showing that US consumers plan to spend over 4% less on gifts this festive season.
With unemployment at 9.8%, home foreclosures continuing and working hours and wages falling or static for th
