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America on Sale

In case you needed more proof that inflation is not much of a concern at the moment: “Great Time for U.S. Consumers: America Is on Sale.”

“There has never been a better time to be a consumer,” writes Rachel Beck.  “What’s happening now has been building for years. Wal-Mart Stores Inc. introduced ‘every-day low prices’ many years ago.  Amazon.com redefined the idea of bargain prices during the late 1990s when it helped introduce online shopping.  After the 2001 recession, automakers introduced zero-percent financing to boost sales.  McDonald’s “Dollar Meals” made fast food even cheaper.  But until the Great Recession came along, consumers hadn’t seen anything yet.”

As we  have written in prior posts, this is the New Normal.   And it’s part of the process of deleveraging and deflation.  Cut-rate prices erode the profit margins of both manufacturers and retailers, which reduces the retained earnings they can use for capital investment.  Eventually, weaker and less financial agile competitors fail, taking excess capacity offline and enabling businesses to raise prices again.

Needless to say, we’re not there yet, and we won’t be for a while.

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy