WE SHOPPED TILL WE DROPPED; GROSS DOMESTIC PRODUCT FALLS IN 3RD QUARTER; In a stark indication of widening national distress, consumer spending dipped for the first time in 17 years. And Minnesota is feeling the chill.(NEWS)
Star Tribune (Minneapolis, MN) October 31, 2008 | Meyers, Mike; Writer, Staff; Cummins, H.J.
Byline: MIKE MEYERS; STAFF WRITER; H.J. CUMMINS; STAFF WRITERS Grim tidings for the holidays, across Minnesota and the nation, came gift-wrapped in the latest government economic reading. Shrinking output, falling consumer spending, miserly business investment — all part of the latest report on the gross domestic product — portend “Seasons Greetings” with an ugly twist.
Economists and business experts see little to celebrate in the recent past or in forecasts for the months to come. The value of all goods and services produced in the United States dropped at an annual pace of 0.3 percent, a number that masked sharp declines in consumer spending, business investment and new-home construction.
The most unsettling element in the GDP data was the 3.1 percent drop-off in consumer spending, which makes up more than two-thirds of economic activity. An outright reduction in such spending is rare: The last time there was a consumer-spending decline was a 0.3 percent dip in 1991, and the last time it fell more came in 1980, as the nation was heading into a lengthy recession. go to website best buy mastercard
President Janet Yellen of the Federal Reserve Bank of San Francisco said that recent data on the U.S. economy is “deeply worrisome” and the government should consider new ways to help homeowners and stem foreclosures. Minnesota’s economy has been showing signs of trouble for some time. For three months in a row, the number of jobs across the state has declined. For the past two years, the number of state jobs grew at a slower pace than the national average.
Meanwhile, state government is bracing for a drop in revenues, as consumer spending lags and personal incomes stall or fall.
The malaise can be seen from shopping malls with boarded-up storefronts to car lots choked with excess inventories to the shrinking number of “Help Wanted” advertisements in newspapers.
“The third-quarter GDP numbers hinted at what’s likely in store for Minnesota over the next six to nine months,” said Minnesota state economist Tom Stinson. “Most economists expect the fourth quarter of 2008 is going to show a much larger decline.” Minnesota retailers are struggling not to go down with the economy. Brian Dunn, Best Buy’s president and chief operating officer, said it’s the most volatile, fearful and unpredictable business environment he has seen in his 23 years of retailing. He said that a $700 billion federal economic-stimulus plan and a soon-to-be decided presidential race will help, but not ease all of consumer worries.
“Everybody will still have their gift list, they just might move down a bit with how much they’re going to spend,” Dunn said.
Best Buy officials said more customers than ever are turning to it for financing — either with its Best Buy MasterCard or by signing up for an 18-month, no-interest payment plan for purchases over $499.
“We’ve seen business drop off to nothing in the last four weeks,” said Jason Caldwell at Go Home, a designer home furnishings store in Uptown that sells $2,000 sofas and $800 lighting fixtures. “I’ve never seen it this bad,” said Caldwell, who has been a clerk at the store since it opened in 1996. “But these are scary times, and I don’t know if people have the disposable income to spend,” he said.
Even good news isn’t very good At a time when spending on durable goods dropped more than 14 percent, St. Louis Park-based Appliance Smart saw a relatively light drop of 1.8 percent in its same-store sales, CEO Jack Cameron said. The chain, with 17 stores in the South and Midwest, dodged fallout from the construction collapse because its warehouses have always focused on replacement shoppers, Cameron said. But it’s not all good. “We miss the sales when people used to come in to buy a washer and buy a set,” he said. “Now they say, `The old dryer is working good enough for now.’” Financial advisers around the Twin Cities didn’t need to see the official numbers to know that consumers aren’t spending. They look at their clients’ behavior.
Darla Kashian of RBC Wealth Management has always urged clients to think before they buy because “a lot of spending happens mindlessly,” she said. But in good times, they didn’t usually listen.
That changed this year. “My clients who have never had to think twice about a spending decision now are considering those decisions much more carefully,” she said, citing a couple who could afford a $40,000 SUV but are looking for a used vehicle instead.
St. Paul financial counselor Ruth Hayden says her clients are cutting back whether they need to or not. She recalls one couple who had been planning to buy a flat-screen TV and had the money to do so. But they’ve decided to wait, not wanting to have the fanciest set among their friends. “Two years ago that would have been a thing to brag about,” she said.
To Hayden, this represents a tectonic shift in the mindset of America’s consumers that will impact the economy for months, if not years, to come.
Twin Cities performing arts organizations say the economy hasn’t meant dwindling houses — though some are discounting more to keep seats full. The Minnesota Orchestra anticipated tough times with a conservative budget, said spokeswoman Gwen Pappas. The orchestra is offering $25 tickets for selected concerts in November. Renewal rates for classical subscriptions are up, but people are buying smaller packages, Pappas said. web site best buy mastercard
Gabriella Calicchio, managing director at Children’s Theatre, met its financial target for “Madeline and the Gypsies,” selling more tickets than anticipated at lower prices. The group reached its $1.4 million season subscription goal last week. Its upcoming holiday show, “The Lion, the Witch and the Wardrobe,” is 15 percent ahead of last year’s show.
Graydon Royce, Kara McGuire and Jackie Crosby contributed to this report, which also contains information from Bloomberg News and the Chicago Tribune. meyers@startribune.com – 612-673-1746 hcummins@startribune.com – 612-673-4671 THIRD QUARTER: WINNERS AND LOSERS PERSONAL SPENDING -3.1% It’s the first quarterly drop in consumer spending in 17 years.
IMPORTS -1.9% That’s less than the 7.3 percent drop in the second quarter.
EXPORTS +5.9% Without this increase in exports, the gross domestic product would have slid 1.1 percent.
FEDERAL SPENDING + 13.8% Military spending was the key driver, rising 18.1 percent.
Note: Percentages are annual rates GROSS DOMESTIC PRODUCT 3rd qtr 2008: -0.3% (See microfilm or PDF for complete chart.) Source: Department of Commerce Meyers, Mike; Writer, Staff; Cummins, H.J.
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