Poor Sales Hurt Jobs Numbers

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A key reason why unemployment is surging is obvious, but it gets overshadowed by talk of stimulus and bank credit. For many companies, sales remain stubbornly weak. Poor sales are cited by small businesses as their No. 1 problem, and until sales pick up, it's unlikely that hiring will rebound.

STEVE INSKEEP, host:

One big question for retailers is whether the economy has fundamentally changed.

RENEE MONTAGNE, host:

Whether the economy that depends heavily on them may be shifting. NPRs Adam Davidson of our Planet Money team has been following that part of the story.

Good morning, Adam.

ADAM DAVIDSON: Good morning, Renee.

MONTAGNE: Help us out, here. Consumer spending is weak, but its not plummeting. That sounds like a good thing, but why is it so important?

DAVIDSON: Well, consumer spending is the driver for our economy. And that might sound obvious. You know, anything you make, you want to sell. Anyone who has a store is trying to sell things. But you can look at other economies, like China, where really exports to other countries drives their economy. Or you can look to oil-rich nations where oil wealth drives their economy.

But here in the U.S., its all about consumer spending. Its more than two-thirds of our economy, and anyone who makes any money in the U.S. is making it because some consumers somewhere decided to spend money. So when consumers stop spending money, that causes real, real problems - the problems that we are dealing with.

MONTAGNE: And, of course, were getting into the big money-spending season. What do these numbers mean for the upcoming holiday shopping?

DAVIDSON: There is one huge question that is on the mind of every economist and every business CFO, which is: Are we in for a quick recovery? Is this like many recessions in recent years, where therell be a steep decline and then a quick move upwards? Or are we in for just a long, miserable slog? And its really up to us. Its to how much we spend in the next year or two. This Christmas being when a lot of that spending happens will tell us a great deal about whether we can expect to be in a much healthier economy in early 2010, or whether we should just prepare for another year of slow, tepid growth.

MONTAGNE: Although, Adam, there are those who say this recent economic pain -and ongoing for many, actually - has started a shift from being a consuming country to a savings country. Is that true?

DAVIDSON: Certainly, it is true for this last year. We had, you know, close to a zero percent savings rate thats now up closer to five percent. Thats a dramatic, dramatic change in just 12 months. The Depression really changed a generation or twos attitude to money and savings. I dont think this crisis was long or deep enough to make that kind of change.

But people are noticing already that people are spending a lot less, even people with jobs. Small businesses are saying this is their number one problem. They cant get people to buy stuff, which means that those businesses have to give steeper and steeper discounts to seduce people to come into the store, which means that those businesses cant hire new people, cant raise the salaries of their employees. It also means that the manufacturers who deliver them goods cant raise their prices as much. So, if we are shifting from a consuming nation to a savings nation, that might on the face of it sound good, but that will cause severe, severe pain.

MONTAGNE: Okay, so besides combing through receipts - kind of basically finding our people are buying and spending their money on - what else are economists looking at?

DAVIDSON: There is so much economic data. Its really overwhelming, all the data that comes out. But what I would recommend to people who are not active economists is really, there are two key numbers. Theres consumer spending, and theres unemployment. Consumer spending drives the rest of our economy. So that really is going to tell you - thats a leading indicator. Thats going to tell you where we are heading, how we are doing.

Unemployment - thats what its all about at the end of the day. This - you know, we want this economy to support the maximum number of people who can be profitably employed. You know, were now about at 10 percent. That has a feedback effect. It makes people even more nervous, even less likely to spend, which makes it even harder to break out of an economic downturn. But those are, I would say, the key numbers: consumer spending and unemployment.

MONTAGNE: Adam Davidson of NPRs Planet Money team, thanks very much.

DAVIDSON: Thank you, Renee.

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