MADELEINE BRAND, host:
It is not your imagination. Clothing prices are higher. New figures show that prices are higher now than they were two years ago. And for more on this we're joined by retail analyst Howard Davidowitz, chairman of Davidowitz and Associates.
Howard, welcome back to DAY TO DAY.
Mr. HOWARD DAVIDOWITZ (Davidowitz and Associates): Thanks for inviting me.
BRAND: So I'm a shopper. I go the store. How - what is the increase that I'm looking at, let's say, for a sweater or a pair of pants? How much more am I paying?
Mr. DAVIDOWITZ: Well, if you bought a $20 pair of pants, you could be paying a dollar more.
BRAND: OK. That doesn't sound like a lot, but...
Mr. DAVIDOWITZ: That's tremendously significant when you recognize that the consumer, the real consumer, 150 million customers at Wal-Mart, 20 percent of them don't have bank accounts, it's very significant, because for the real life consumer, for those 150 million Americans who have no savings, who have subprime loans and everything else, let me tell you - every dollar is important. They're having trouble putting food on the table.
BRAND: So for a long time, because of imports from China, women's clothing prices were dropping, actually sinking, and now they're rising faster than other items. Why?
Mr. DAVIDOWITZ: Well, first of all, wages in China are increasing. The dollar has collapsed against the Chinese - as it has against most currencies.
BRAND: Mm-hmm. And so does that effect all clothing across the board?
Mr. DAVIDOWITZ: Mainly it affects women's, but it does affect all clothing in one way or another. It's another factor that just popped up, as you said, over the last few months. It's kind of surprising. And it's adding to our stagflation conundrum.
BRAND: OK. Now, explain what a stagflation conundrum is. What does that mean?
Mr. DAVIDOWITZ: Stagflation means you have very slow growth or no growth and inflation at the same time, which is exactly what we have. If you're a consumer who drives, who shops, who buy things, you're living with 4 or 5 percent inflation. Forget what the government says.
That's deadly on top of all the other issues with the worst housing crisis since the Great Depression, negative savings, record debt, credit pullbacks. The consumer is falling further and further behind on their credit card payments, their auto payments, their housing payments and everything else. Add to that inflation and the consumer is completely under water.
BRAND: You paint a very dire picture.
Mr. DAVIDOWITZ: I think I paint a very accurate picture. What the government is doing, they're going to be dropping checks out of helicopters to try to rescue the situation. That will also explode the deficit. But clearly the government is desperate to do anything.
Then - we're the biggest debtor nation in the world. George Bush has borrowed more money than all the other American presidents put together. We're just a debtor country and that's a very scary place to be.
BRAND: Well, we've been a debtor country for a while, and for a while it's worked for the economy because people have been spending, spending, spending. What are you seeing in the stores?
Mr. DAVIDOWITZ: What I am seeing is a non-sustainable situation. What I am seeing is Bombay closing all its stores, Ann Taylor closing stores. I see stores closing on a massive scale. I see retail earnings way down. I think the consumer is absolutely under water, that's 72 percent of the economy. And that's why all of this debt is simply not sustainable. And you cannot go on borrowing the way we are. It is simply not sustainable and it is insane.
BRAND: Howard, thank you.
Mr. DAVIDOWITZ: Thank you very much.
BRAND: That's Howard Davidowitz, retail analyst and chairman of Davidowitz and Associates.
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