Low Cost Sellers of Goods Show Increase in Sales for April

Clear evidence that penny-pinching by consumers has begun in earnest

May 11, 2008       Leave a Comment
By: Jerry Cole - Retirement, Investment

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Through every set of clouds a little sun must shine. This week that sun shone directly on Wal-Mart, Costco Wholesale and other low-cost sellers of goods. Wal-Mart, the biggest U.S. retailer offering discount prices and cheaper gasoline, reported same store sales (those open at least one year) up 3.2% in April. Analysts on Wall St. were expecting sales up 2.1%.


This is clear evidence that penny-pinching by consumers has begun in earnest. They have turned to retailers where their dollars will stretch further. But, at least not so far, there is little evidence that consumers have begun to do without. That is especially true when you look at the oil inventory which has not shown much, if any, build-up due to decreased consumption.

This raises the question that at what point will consumers do without? When will they put the key to the car in the drawer and find another way to work or not take any unnecessary trips? For example, I'm driving to Chicago this week-end and I did a little quick math to find what my gasoline cost will be.

Round-trip I expect to put on about 700 miles. At 25 miles/gal, it will take 28 gallons to make the trip and at $4.00/gallon that will come to $112 just for gasoline. Now on a proportional basis, if oil went to $200 a barrel from its present $120 a barrel, gasoline would be $6.67/gallon and the trip would cost $186.76 just for the gasoline! (It would probably cost more than that as gas prices increase proportionately more than oil prices increase). So would that make me reconsider the trip? I think so.

Meanwhile, to what extent the increase in oil prices will fuel inflation we do not yet know. Some commentators have expressed concern than an easy monetary policy may be fueling inflation. This may be false. The main mechanism by which lower interest rates generate higher inflation is by over-heating the economy, i.e. stoking up economic demand that supply cannot meet. But the U.S. economy is clearly not suffering from excess demand right now. If we were we would not be close to a recession and wages would be increasing not falling.

The Fed has been working over-time to keep the economy from falling into a recession through the seven cuts in interest rates over the last year. The administration and congress has chipped in with the stimulus payments. It seems to do our part we should get out there and spend that extra money. Or should we lower our debt?

In the meantime, be sure to keep your risk within your tolerance and keep ahead of inflation.

I invite your questions.

(The opinions expressed are solely those of the author and not Gen worth Financial Securities Corporation.)

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Jerry Cole - Retirement, Investment
Jerry Cole has been a Financial Planner for almost 30 years in the Tri-City area and holds and MBA from USC. More from Jerry Cole - Retirement, Investment

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