I read the article “Retail Sales Fall for Second Time in
Three Months.” Economists believe that
sales figures are declining recently for one of two reasons, possibly a
combination of the two: either the payroll tax and income tax hikes earlier in
the year have taken a harder toll on people than was believed, or the colder
weather of this past February and March have made the sales numbers
strange. I find it hard to believe that
the tax hikes had nothing to do with these low numbers. In class we discussed two things the
government could do to help the economy.
Doesn’t our economy need help right now? Yes. So, they could either raise government
expenditures or lower taxes. The article
says that the government has done neither of these things. Not only did they raise taxes, but the
government has cut spending in many areas. With consumer spending down, the largest
element in calculating GDP, I’m curious as to what effect has been made on
RGDP.
Knowing
that consumer spending has decreased recently, it shouldn’t be a surprise to
find out that, as the article says, consumer sentiment (that being
satisfaction) has also gone down. Happy
people shop. Unhappy people don’t
shop. People who have higher taxes, on
taxes that are already pretty high, also don’t shop. I’m not sure how the government thought they
were stimulating the poor economy by doing the exact opposite of what we have
discussed in class regarding fiscal policy.
In the article, Cary Leahey, an economist who works at Decision
Economics said, “The worry is the full reaction to the expiration of the
payroll tax cut and to the sequester budget cuts won't be evident until
sometime this quarter.”
Let’s
talk about the decline in consumer spending.
We know that it’s because of tax hikes and because the government is
caught in the middle between lowering the deficit and stimulating the
economy. But what else is affected by
less consumer spending? Well, stores
aren’t making money. If there isn’t a
demand for new clothes, beach accessories, and iced mochalattecinos, then
stores won’t supply it- or they supply it at a lower price. The picture in the article is of a store
front with a sign saying, “SALE, fresh markdowns, right now- WOW!” That’s
right: sales. Sometimes we see sales on
out of season clothing and accessories and it makes sense. That’s not what the current sales are. Currently, the sales are probably because of
the low consumer spending and no one is going to buy $100 sunglasses or
sandals. Even the wealthy got higher
income taxes earlier this year.
People
were hurt by the tax raises at the beginning of the year and we are now seeing
the effects of those raises. As Cary
Leahey said, the concern now is that this is just the beginning. The sad part is that we learned about what
the government can do to boost the economy, and they did the opposite. Lower consumer spending is the result which,
being the biggest factor of GDP, does not boost the economy. Unfortunate.
http://www.thefiscaltimes.com/Articles/2013/04/12/Retail-Sales-Fall-for-Second-Time-in-Three-Months.aspx#page1
I agree that the higher taxes had something to do with the fact that retail sales are down. I also agree with you that this article informs us that our government has done just the opposite of what we talked about in class. Why won't our government lower taxes or raise government expenditures? Why has our government done the complete opposite and raised taxes? I wish I could answer this question and I wish I could say that they have a perfectly good explanation for why taxes are higher, but unfortunately I cannot say with confidence that our government is raising taxes for a good and helpful reason.
ReplyDeleteI understand that weather might impact the amount of shopping people do, but I cannot imagine that it would make retail prices fall dramatically. If people really do not want to go shopping because it is too cold, they can always go online a shop. I think the article was wrong to say that the cold month of March dropped retail sales. I know that college students in particular do a lot of online shopping no matter the season. So, to say that the cold weather kept consumers from shopping is a little extreme and hard to buy.
I also do not know if you are 100% correct in saying that happy people shop, and unhappy people do not shop. I believe that a lot of people shop when they are upset to boost their moods. Shopping to improve ones mood is like eating to improve ones mood. I am sure that there are people who shop more when they are unhappy, then when they are happy. I understand that maybe the majority of people in The United States shop more when they are happy, but even that might be a little optimistic. The saying makes sense though. One would assume that the happier a person is the more they will shop, but it also makes sense to say that the unhappier a person is the more they will shop to improve their mood and become happy. Does it not?
When you say that people who have been hit hard with the higher taxes are not spending money, I agree with you. People who have less money to spend are probably not going to waste it on designer handbags and sunglasses. These people are going to buy food for their families. The middle class in America is the biggest group, but if our government keeps raising taxes, many people who are within the middle class may not be able to stay within the middle class group and may fall below the line. Leaving America with less high spenders, which leave retail stores with little money circulating and eventually putting businesses out of business.
By: Elli Fields
I am critiquing Casey Degen’s analysis of the article “Retail Sales Fall for Second Time in Three Months”. It appears evident to me that sales figures are declining for a very simple reason and mother nature is not the culprit. Taxes, especially payroll and income, at least for my family and I, directly subtract from the amount of spending we do monthly.
ReplyDeleteWith the sales figures declining, and in turn GDP, the government needs to act to assist the economy. They could use expansionary tactics to increase the GDP by raising the amount of government expenditures. Or they could try and slow down the economy from fear of inflation by lowering government expenditures and raising taxes to decrease GDP.
The inflation rate in the past 12 months increases 1.1% and 1.7% just in the month of February. The inflation environment could steer the economy down a path of faster growth, thus expansionary policy from the Fed. That’s why I don’t get why the tactics chosen were the exact opposite tools necessary to increase GDP. By raising taxes and cutting government expenditures, the issue of declining sales figure is only going to get worse.
Consumer sentiment may have some role in the declining sales figures, but I find it hard to believe that how happy an individual is can create such a significant decrease. People will shop less because they have less money with the higher taxes, not because they are unhappy now that they have less money. I disagree with your statement that unhappy don’t shop. I think the term unhappy is used in this article as a substitute to describe the simple fact that taxes have taken more money from individuals than in recent years.
The effects of higher taxes are directly affecting the amount of money people spend shopping. Can you blame individuals for spending less money when they have less though? I can certainly say that when my taxes are higher, my paycheck is much more valuable to me and each and every dollar I have earned is that much more important to me.
I wonder what exactly the Fed’s motives were behind these tactics. I highly doubt this was some grave mistake or an error in judgment. The decision was made to raise taxes and cut government expenditures, the two main tools the Fed has to decrease GDP and slow down the economy. They have successfully slowed down a portion of the economy that was already slowed and in need of a boost. I wonder what effect this move will have in the future and if there will be more suspect tactics like this.
I think this article does a good job at relating the declining sales to increased taxes, and how that can lead to unhappiness, which in turn leads to people spending less on luxury items. Casey does an excellent job summarizing the main points of the article as well as analyzing the content. The article critique relates the article to our class discussions right away and defines many of the terms used in the article. I think Casey’s analysis is very good and does everything that can be done with the information given, my main critique is both the article and Casey not taking in how online sales effect the decline in the retail sales.
ReplyDeleteThe topic of failing retail sales is something I’m very familiar with. From 2006-2011 I worked for Best Buy and witnessed firsthand the steady decline of sales year to year. In the early years I worked Best Buy at Valley View Mall in Roanoke, VA did pretty well. We were never the top store in the company but sales were decent and one year (2007 or 2008) we made enough profit as a store to where even the part time employees such as me would receive a bonus each quarter. But online sales had steady been increasing, websites like Amazon and Newegg were the true competitors. From my experience, the appeal of online shopping has been the real killer for retail sales. This was evident when at one point we were price matching Amazon (And other various online stores) if customers requested it. This type of aggressive price matching only lasted a couple months because we ate so much profit doing it, it was actually more economic to let the business walk rather than discount the products to match online competitors. I can’t count how many times I would finish answering a customer’s questions about a camera, television, car speakers, etc. only to “ask for the sale” (Best Buy Lingo…) and receive the reply, “No, I think I’ll buy it on Amazon because it’s cheaper.” It’s hard to argue with that logic, and who can blame someone for trying to save money with how tight money is today.
It’s pretty well known in the world of retail that a large portion of the people who come in to view a product, is basically just testing it out before they buy it online. Best Buy and most brick and mortar electronic retail stores are rapidly turning into a test drive center for online sellers and it probably won’t be long before giant stores like Best Buy, Circuit City, and hhgregg are all but a memory. Perhaps insight like this is not going to be found in a textbook just yet, but online sales have completely changed the game for retail stores and unless they change their structure very rapidly and effectively, it may already be too late.
I think this article does a good job at relating the declining sales to increased taxes, and how that can lead to unhappiness, which in turn leads to people spending less on luxury items. Casey does an excellent job summarizing the main points of the article as well as analyzing the content. The article critique relates the article to our class discussions right away and defines many of the terms used in the article. I think Casey’s analysis is very good and does everything that can be done with the information given, my main critique is both the article and Casey not taking in how online sales effect the decline in the retail sales.
ReplyDeleteThe topic of failing retail sales is something I’m very familiar with. From 2006-2011 I worked for Best Buy and witnessed firsthand the steady decline of sales year to year. In the early years I worked Best Buy at Valley View Mall in Roanoke, VA did pretty well. We were never the top store in the company but sales were decent and one year (2007 or 2008) we made enough profit as a store to where even the part time employees such as me would receive a bonus each quarter. But online sales had steady been increasing, websites like Amazon and Newegg were the true competitors. From my experience, the appeal of online shopping has been the real killer for retail sales. This was evident when at one point we were price matching Amazon (And other various online stores) if customers requested it. This type of aggressive price matching only lasted a couple months because we ate so much profit doing it, it was actually more economic to let the business walk rather than discount the products to match online competitors. I can’t count how many times I would finish answering a customer’s questions about a camera, television, car speakers, etc. only to “ask for the sale” (Best Buy Lingo…) and receive the reply, “No, I think I’ll buy it on Amazon because it’s cheaper.” It’s hard to argue with that logic, and who can blame someone for trying to save money with how tight money is today.
It’s pretty well known in the world of retail that a large portion of the people who come in to view a product, is basically just testing it out before they buy it online. Best Buy and most brick and mortar electronic retail stores are rapidly turning into a test drive center for online sellers and it probably won’t be long before giant stores like Best Buy, Circuit City, and hhgregg are all but a memory. Perhaps insight like this is not going to be found in a textbook just yet, but online sales have completely changed the game for retail stores and unless they change their structure very rapidly and effectively, it may already be too late.