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Retail figures for December hit the ground running today, providing further confidence as to the state of the world's largest economy. Despite a looming fiscal cliff, the prospect of spending cuts and tax hikes, American consumers’ annual Christmas spending spree was far better than expected. Purchases were 0.5% higher, a welcome surprise considering the unpredictable horizon for the US economy. To many, this reflects that the US economy really is in control. Consumers have the ability to spend, despite tighter purse strings and the forced shift in spending habits away from what was a highly credit-driven society.
Many of the typical economic pressures seen around this time of year have eased. Firstly, petrol prices - one of the first ingredients to apply pressure to household budgets - have fallen dramatically from a year earlier. Petrol remained at an average price of $3.30 per gallon ($0.86 per litre), the lowest price in more than a year. But that's not the only contributing factor: Big business continues to drive competition. Large chains such as Macy's have been discounting extensively over the past year, making 2012 the 'year of the bargain' and enticing buyers back into US department stores.
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Looking out for small business
Despite the encouraging numbers for retail spending, small business is likely to come under further pressure. While big department stores and major retailers have reported encouraging spending, these businesses have deep pockets and the ability to squeeze margins, whereas their smaller competitors cannot. Major retailers will continue to drop prices – and even run at a loss - to continue to attract customers. Such practices are common in America and Australia, where retailers such as Coles and Woolworths have been squeezing out smaller competition for years. Small business in America is licking its wounds, forced to fight for the scraps left by big business and this is not likely to change any time soon. Price competition is a dangerous game. It sets the expectations of consumers and begins a war that eventually leads to domination by big business. Despite this, the positive US retail situation will mean stronger car sales, increased employment and higher wages, all signs of an improving economy.
Stocks continue to perform and (some) businesses are reporting growth. Should petrol prices rise, taxes increase and spending cuts kick in, the already cut-throat retail sector may play even dirtier, further hurting small business.
Stay Ahead of the Game,
Lachlan McPherson |