Latest Economic Data Bleak
ROBERT SIEGEL, host:
Some new economic statistics today confirm what you've probably suspected. First, housing prices are way down this year. The Standard & Poor's Case-Shiller Index reports that as of October, home prices had dropped a record 18 percent from the year before in 20 big metropolitan areas. Also, not surprisingly, consumer confidence is way down and retail sales are down. Roben Farzad of Businessweek joins us from New York. And Roben, how low is consumer confidence? Mr. ROBEN FARZAD (Senior Writer, Businessweek): How long can you go?
Mr. FARZAD: That's the question here. It's the lowest reading in the 41 years that they've been keeping tabs on this. But I think the market's taking it in stride because it's no secret that this year has been just a catastrophe across the board. So, a lot of this is already baked in.
SIEGEL: Now, explain something to me about how it's been taken on, let's say, Mall Street here for a moment. Chain stores reports sales down, if I have this right, 1.8 percent for the week ending December 27th from last year. And there are dire forecasts that the whole season could be down two percent for all of November and December. If I could only see a loss of two percent on my home value or my stocks, I'd be thrilled. What do those numbers supposedly say, and are we so addicted to growth in the retail economy that even a small downturn is a catastrophe?
Mr. FARZAD: You know, it is partly that. But more urgently here is, I think, the anticipation of the hangover of this underwhelming holiday season. What you're going to see the next two, three months is, you know, another 40-year superlative unprecedented pain for retailers. You're going to see more than 75,000 stores close in the first half of 2009. Already, the bankruptcies of Circuit City, Sharper Image, of Linens 'N Things and the fear here is that a lot of this prosperity that was baked in to all these developers and their projects for strip malls and Trader Joe's here and a Macy's there, that's a false prosperity. And we're going to have to be paying for that in spades as retailers realize there just isn't the disposable income to afford that capacity.
SIEGEL: So, it's all the consequences that flow from a downturn in retail spending, however small that downturn might be?
Mr. FARZAD: Well, the downturn is from an unusual - a lot of people would say artificial high, and that you had this prosperity in this decade that was really built by kind of the wampum of the housing market. Everybody thought that home prices would keep going up, you could refinance, you could take cash out and all of that is still unwinding, quite painfully, because people are underwater, they have negative equity. And they're just not going to go out there and dine at Red Lobster when they're feeling like this. And this despite the fact that retailers are just practically begging you to buy it - I mean, free shipping, buy one, get one free, I'll throw in my kidney - you name it.
(Soundbite of laughter)
Mr. FARZAD: And it's just not working.
SIEGEL: Now, (Laughing) a couple of months ago you shared with us your personal contrarian indicator of market trends, the Persian Relative Contrarian Index. What do your Persian relatives say? (Laughing) What did they tell you about the state of the economy at year's end?
Mr. FARZAD: Well, you know, this summer, actually - to update it - they were all keen on oil prices at a $140, $145. You know, Farzad, we need to buy oil. We need to warehouse it.
(Soundbite of laughter)
Mr. FARZAD: And lo and behold, they called the top, because oil has since fallen to 35 bucks.
(Soundbite of laughter)
SIEGEL: You can count on them to tell when…
Mr. FARZAD: And I'll tell you this, they have not talked about the stock market in almost a decade. And I think by dint of that deafening silence, it might finally be time for Americans to come back to equities after having their heart broken so many times. Nothing is working out there. You're not making money on your savings. Commodity prices have fallen. You're worried about losing your job. What kind of money is coming in the door? So, people are going to have to get creative and, I think worryingly, a bit more desperate that they have been.
SIEGEL: Roben Farzad, thanks a lot for talking with us today.
Mr. FARZAD: Thank you, Robert. Thank you.
SIEGEL: It's Roben Farzad, senior writer for Businessweek, talking to us from New York City.
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