Meet the Street: It'll Be a Blue Christmas for Retailers

Though the recession isn't yet official, the U.S. economy continues to weaken steadily.

Carl Steidtmann chief economist, Deloitte Research

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More than 1.6 million jobs have been lost through the first eight months of 2001, and job losses likely will keep mounting through the end of the year. As the pain of unemployment spreads, retailers have hunkered down for difficult times and are prepared for a weak Christmas season, says Deloitte Research Chief Economist Carl Steidtmann.

We talked to Steidtmann about his forecast for consumer spending in the face of a recession, as well as his broader economic outlook. Despite all the near-term gloom, he says he expects a recovery as soon as early 2002.

TSC: You've said consumer confidence doesn't tell us much about what to expect in consumer spending. Why do you think it's not important?

Steidtmann: I think the basic premise we've always had is that you can't think yourself into a recession. If you look at the relationship between consumer confidence and future consumer spending, there's not much relationship at all. If you do a statistical analysis of the relationship between future expectations and what consumers actually do, there's a fairly large variance. The fact of the matter is people spend the cash in their pockets.

What we look at are the factors that affect household cash flow. We have seen that home mortgage refinancing has been pretty strong, driven by lower interest rates. If you're looking for a bright spot, that would be it.

We've also found that significant changes in energy prices can have a very positive effect on purchasing. We've certainly seen prices come down since the first of the year, and that frees up money to get spent in other categories. The expectation is that prices will continue to fall over the course of the next six months. That also would be mildly favorable.

The big negative, however, is obviously employment. Between now and the end of the year, [we may see] the loss of another half a million jobs.

Really, that more than anything is setting this Christmas season up to be one of the worst in memory. We were well on our way to having a very poor Christmas before the terrorist attacks. Most retailers have been very aggressive in keeping their inventories under control. This year there will be strong promotions before Christmas, but not nearly as much after Christmas, simply because there won't be the same degree of inventory. ...