Posted by Gene Colter
Americans are paying a lot more to drive to the malls, and they return to homes that are worth a lot less than they were a year ago. So how come consumers continue to patronize the nation’s chain stores with some vigor?
As any pundit will tell you, the answer is tax rebate checks from Uncle Sam. Any number of articles in recent days has cited this found money as the reason that retailers’ sales and net incomes, while down from prior periods, nonetheless have held up reasonably well.
That’s good news for the Bush administration, which is counting on one-time infusions of $600 a person or $1,200 a household to keep the party going in an economy that gets about three-quarters of its economic activity from consumer spending.
But is it credible? As Ethan Harris, the prescient and deservedly popular chief U.S. economist at Lehman Brothers puts it, the consumer has been spending like a drunken sailor on shore leave for a long time now.
And while the bar isn’t quite as rowdy as it was in the days when mortgage lenders didn’t bother to ascertain whether people could afford to pay usurious loan rates, the taps are indeed still flowing.
To attribute much of the still-decent performance of retailers to tax rebates is, at best, guesswork. It’s also overly simplistic analysis and lazy journalism. And it ignores the fact that the checks aren’t all in the mail: Many Americans won’t get theirs until mid-July.
Of course, the retail industry is known for pat explanations. Same-store sales losses are often attributed to adverse weather, an explanation that makes some sense when it’s 75 degrees in November and the down coats aren’t moving but that surely can’t account for all of the lousy quarters Mother Nature has had to answer for.
Best Buy, the electronics chain that’s nice enough to make otherwise sane people drive on roads such as New Jersey’s belief-in-a-higher-being-destroying Route 22, is among the latest retailers whose better-than-expected earnings were attributed to the rebate checks.
Kudos to Best Buy CEO Brad Anderson for throwing a little cold water on that explanation. While he may have been trying to manage future expectations, Anderson nonetheless injected some needed perspective into the conversation when he told Bloomberg News: “If I had to guess, I'd say a third of what we're seeing is coming out the rebate checks.''
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