Insights & Advice

|

The truth behind Black Friday

The disappointing 11% decline in brick and mortar retail sales on Black Friday took Wall Street and Corporate America by surprise. Excuses vary from the holiday shopping fad has run its course, to people just wanted to be with their families on Thanksgiving. Don’t believe it.Ford
One CEO of a mega-discount retail company, when interviewed, bemoaned the disappointing sales, blaming the economy’s 2-3% growth range, which he said, “feels like it’s kind of perpetual.” For all of the hype and advertising devoted to turning out consumers for the extended Thanksgiving weekend, Black Friday was the biggest dud of the year.
This occurred even as the price of oil declined by over 30%, providing the largest boost to the consumer’s pocketbook in years. Despite this windfall, consumers stayed home. It is part of an on-going story within this American economic recovery. Sure, Corporate America is making record profits. The stock markets are at record highs and, on the surface, unemployment is trending lower, but much of America is being left out of these good times.
Although the October jobs report showed strength in employment, a deeper examination reveals that much of the gains were in part-time or temporary employment. October’s report showed that wages rose 0.1% for the month and for the year just 2.0%. That’s below the rate of inflation. The truth is that after six years of recovery wages have stood still.
The jobs that are being created in this country are minimum wage service jobs for the most part. Last month, one out of every five jobs created in the U.S. went to a bartender or waiter. We now have almost as many jobs in those professions as we do in manufacturing.
This year congress, at the behest of Corporate America, shot down a hike in the minimum wage, arguing that a pay raise would cause corporations to reduce the number of workers they employ. With a shrinking middle class and more and more Americans subsisting on minimum wage jobs, exactly how are we expected to go shopping on Black Friday? At best, a worker’s monthly paycheck covered Thanksgiving dinner for the family. Is Wall Street so far removed from the economic reality that the rest of us face?
In January, 1914, over a hundred years ago, thousands of American workers stood in the frigid Detroit winter to take Henry Ford up on his offer. The auto magnate was offering workers $5/hour, double the prevailing wage, to work in his motor assembly plant. With that act alone, Ford established a middle class in this country and revolutionized the business world.
Now Ford was no philanthropist, far from it. Up until then his yearly production of Model “T” Fords was averaging about 200,000 automobiles. He wanted to move that number up to a million, but realized that there simply were not enough Americans with the kind of money necessary to buy one. None of his workers, for example, could afford to buy the product that they were making. He resolved to solve that problem and he did.
Fast forward to today. What is happening in this country is quite the opposite. Corporations are making fatter and fatter profits, mainly by cost cutting and financial engineering, while their workforce is succumbing to a lower and lower standard of living. The big retailer I mentioned at the beginning of this column, while lamenting his lack of sales, neglected to mention that his company had just discontinued medical benefits for their thousands of part-time workers.
This is going to be a real problem going forward for a country that depends on consumer spending for almost 70% of its economic growth. Unfortunately, both Wall Street and Corporate America exhibit, at best, short-term myopia and at worse, long term stupidity.

Posted in A Few Dollars More, Macroeconomics