Not Factoring in the New Reality

Since the S&P 500 index bottomed on March 9th, the S&P 500 retail sub-index has gained 77 percent, outpacing the well known bellwether by 15 percentage points. Meanwhile, from March through the end of last month, the Census Burea's index of adjusted retail and food services sales is estimated to have gained a paultry 2.5 percent -- before inflation.

In fact, since the end of December 2007, the month the current recession officially began according to the National Bureau of Economic Research, the retail sector has outperformed the broad market by 25 percentage points and is actually higher than it was just over 22 months ago (the S&P 500 index, in contrast, is down 22 percent). At the same time, retail sales are estimated to have fallen by around 7.5 percent (again, in nominal terms) over that span.

Aside from casting doubt on equity investors' alleged forecasting abilities (which is not hard to do considering they ran the market up to record highs in October 2007), the continuing divergence between sector share price and industry revenue trends suggests to me, at least, that Wall Street isn't really factoring in the secular change in attitudes that is not only apparent in the following CBS News story, "Recession Teaching Folks To Be 'Frugal Forever,'" but in many other reports as well:

Families Are Hitting Thrift Shops, Cutting Back On Christmas, Doing Repair Projects Themselves Reporting

"Frugal Forever!" It's the new rallying cry for many Americans.

Nearly 80 percent of consumers say they've personally felt the impact of the Recession, so they're living with less.

CBS 2's Dorothy Tucker takes a look at the cutbacks some are making.

While the children in her home daycare sleep, Kim Starkey cleans. She's given up the luxury of a cleaning person in order to save $140 a month. Skipping her monthly massage saves another 75 bucks.

"That I miss deeply," Starkey said, laughing.

Eliminating luxuries? That's just one of the changes Starkey's family made when her husband lost his construction job and she lost half of her day care clients.

"We're just trying to be as frugal as we can," Starkey added.

Americans are forced to be frugal these days. According to a survey by Parade Magazine, 50 percent say they're having trouble paying their mortgage, and 80 percent are finding ways to do more with less.

Damion Lashell is among the first-time shoppers at the Brown Elephant thrift store, where sales are up 10 percent.

"Instead of buying a new item of clothes for $50, you can get several items of clothes for $20," Lashell said.

At a recent class on how to save money using coupons, CBS 2 surveyed 63 people and found that 92 percent are looking to cut back this Christmas.

""So it's really kind of getting into the mindset of how can you maximize the dollars that you have?" Ilenia Lutz said.

Our survey also found homeowners are saving money by dining out less, landscaping their own yards and -- like Starkey's family -- doing their own home repairs.

Starkey figures the family saved $800 by refinishing their own deck. They pocketed another thousand by repairing the shed. Sealing the fence added $200 to the family budget.

Spending time instead of money and giving up luxuries – it's a big change for many Americans, and it could be permanent.

Starkey says even when their income rebounds, her family will continue to do their own repairs.

"Why would you want to give somebody $800 more to do something that took you a weekend to do?" she said.

There are some luxuries people have no intentions of returning to. The number one change, according to our survey: People are eating out less and plan to continue to do so.

Comments

[robert]

What do you want to bet that the trend towards less eating out coincides with a nascent trend away from obesity? We can only hope.

[DavosSherman]

More proof that Summers, Romer (C), Geithner and Bernanke and the entire Congress (save for a few like Ron Paul, Md.) are utter and absolute morons.

How to blow up the economy and create GDII.

Amazing, parents paying north of 20 grand a year to send their kids to be schooled by Professor Bernanke.

[kwark]

On the anecdotal side . . . I recall my grandparents talking about getting-by during Dust Bowl times in Oklahoma; now THAT was living frugally. I don't think most Americans, including the lady giving up her massage (that's tough), have any clue what real frugality - dirt poor style - means. I fear many of us are gunna find out.

And I disagree robert. Congress is not full of morons, just unscrupulous politicians who serve their PAYING constituents first - the more you pay, the better the service you get. And it's really scary to think that Ron Paul, with all his baggage, appears sensible.

[breezer1]

what i saw last year in florida scared me. people working for food. I don't believe we have seen the worst yet. If you can get gold and silver and keep it close.

[Non.Superstitious]

Metals only make sense if you already have plenty of other resources, and have so much money that you can't convert it all to really useful commodities like: land, tools, weapons, medicine, toilet paper, vodka (and I mean BOXCARS of such staples).

In that case, gold and silver can make sense on top of your other preparations. But you can't eat gold, and when Americas obese, superstitious, nearly illiterate but heavily-armed asses are forced to get up from the TV -- they will be looking for food, water, medicine and etc. Not gold. And I suspect our nation with throw a big bloody temper tantrum at being forced into reality again, and they will be looking at everybody but themselves to blame.

I think its going to make the civil war look like a minor skirmish.

[roger]

kwark
my sentiments exactly

[roger]

Intelligence without experience, is like an empty
stomach without food.
For most people the new reality is still very blurred,
more like a thick fog,except the sun is not going to
dissipate it,cause, it's sunset time

[cfds]

Sorry to disagree with some but I strongly believe that the worst is over and even though we might have a bumpy road to recovery it is still a road to recovery.

[S Williams]

I am so tired of the propaganda of "recovery". Recovery to what? There is no real economic engine other than government spending. That will stop at some point. $12T of debt will have to be refinanced over the next few years. who is going to do that?

The recovery crowd needs a reality check.

[Non.Superstitious]

That's the problem with our TV lobotomized nation, they simply grasp for whatever talking head says what they WANT to hear. America now makes nearly nothing, we import everything, we CANNOT 'recover' back to the the boom days. Period. We can wake up and radically lower our consumption levels, learn to cooperate and share resources better, and we could be ok.

But we won't, and folks like CFDS are the reason. They will keep their heads in the sand, believing that magical thinking can help ("think positive!"), and when things DO go to hell. They will be the first ones in the street with a rifle looking for somebody to blame, never looking in the mirror.

[cfds]

Non.Superstitious, I beg to differ.
America has anormous resources and produce a lot.
Just think about the biggest companies in the world and most of them are American, especially when it comes to IT (Microsoft, Google, Yahoo).
OK, not much stuff is produced when it comes to manual labour, but it's because labour is too expensive.
Just look at UK, 70% of GDP is services related, whereas in China it's the other way around.
Investment banking and trading services are the most paid and when rich people ready to trade mainly two cities come to mind, Londong and New York.
Non.Superstitious, you should change your outdated views.