Weaker Economy, Weaker Coin Sales?|
March 11, 2014
Thus far in 2014, most economic reports are coming in below expectations and indicate an economic slowdown. This is an important negative development for coin dealers, who handle merchandise that most buyers can only acquire with surplus or discretionary income.
Unfortunately, the U.S. government wants to fool the public into thinking there is still an economic recovery under way – and to spend money assuming that information to be accurate. One way that the government is trying to mislead people is by claiming that bad weather is responsible for at least some, and maybe the major proportion, of the recent weak economic reports.
Don’t fall for this deception.
There are several signs that prove the economy is getting weaker. The actual decline in last holiday season sales occurred despite higher unit prices. Sales were so poor that Radio Shack last week announced that it would close 1,100 stores instead of the 500 that it had forecasted in late 2013. Earlier this year, Target, Macy’s and J.C. Penney also announced significant store closures and job cuts. Last week, Staples reported a huge decline in revenues and net income and that it would close 225 stores. Even Costco reported much lower sales and earnings than expected.
As people lose jobs from these store closings, that is bound to further reduce consumer demand.
Last Wednesday, the Institute for Supply Management’s February 2014 Report On Business had some terrible data. (See more here.) The Non-Manufacturing index fell from 54.0 in January to 51.6 in February, worse than the consensus forecast of 53.5. That was the lowest reading for this index since February 2010. The decline in this index of demand for services is a sign to coin dealers that consumers are becoming more careful with spending their discretionary income.
Even worse, the ISM Employment Index also fell, from 56.4 in January to 47.5 in February. This was the second-largest percentage decline in the sub-index in its history. The last time that this sub-index declined 15 percent in one month was in 2008, just before the U.S. economy fell into recession.
A genuine reason that could explain why consumers are cutting back on spending is that inflation-adjusted median household incomes in the United States have been declining since the current U.S. president assumed office. (See more here.) From a peak of about $55,500 at the beginning of 2009, the St. Louis Federal Reserve Bank now reports that the inflation-adjusted median household income has declined, almost on a straight line, to just over $51,000 as of last September. With lower incomes, and rising consumer prices, Americans have less to spend on discretionary items.
The Federal Open Market Committee continues to claim that consumer prices are rising less than 2 percent annually. If so, why are the wholesale prices for these commodities already up more than 20 percent just since the start of this year: natural gas, oats, butter and hogs? And why are the wholesale prices on these commodities up at least 7 percent over the past 10 weeks: beef, flour, corn oil, cheddar cheese, wheat, soybeans, cocoa, eggs, sorghum, gold, silver, palladium and platinum? Of the commodities I track, only four show slight decreases since the start of 2014, and two others had price increase of less than 7 percent. Overall 17 of 23 had wholesale price increases of 7 percent or more.
As for the pretense that consumer demand is down across the U.S. in recent months because of nasty weather, the facts prove this to be false. Of the 10 most populous American cities, eight (New York, Los Angeles, Houston, Phoenix, San Antonio, San Diego, Dallas, and San Jose) had higher average temperatures from Jan. 1 through Jan. 22 than their historical average. The two that were lower than their historical average were Chicago by 5 degrees and Philadelphia by 1 degree.
Still, if people were delayed in spending money because of bad weather, this should largely have caught up when the weather improved. Alternatively, people could have increased their shopping over the Internet. However, the U.S. Department of Commerce report for January 2014 retail sales showed that overall retail sales declined 0.4 percent. from year earlier figures and that online retail sales declined 0.6 percent. It doesn’t make sense to me how Internet sales could have declined because of poor weather.
There are a number of other statistics that show that declining consumer demand is a long-term trend and not something attributable to recent terrible winter weather in parts of the United States. For instance, data printed in Barron’s shows that U.S. electrical power consumption has been generally declining since August 2008. The last time that power consumption declined on such a scale started in 1929 and lasted through much of the 1930s.
Steel production in the U.S. fell sharply in 2008 during that recession. Production never returned to pre-recession levels. Since about mid-2012, overall U.S. steel production has again gradually declined. Even scarier, the number of new housing permits and the starts of new housing construction are both down more than 50 percent from levels in early 2007.
To summarize, the actual decline of the U.S. economy is much different than the generally rosy picture presented by government officials. Coin dealers who make future plans on the basis of reality are more likely to survive, and maybe even prosper, than those who fail to plan or who base their decisions on deceptive government reports.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He owns Liberty Coin Service in Lansing, Mich., and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects.
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