Not more than a couple days after I wrote about preparing for a potential recession, two key reports out today are continuing to roil the markets.
- Retail sales gains in August were sluggish at best. Retail sales gained only .3% when auto sales were taken out, the smallest gain in more than a year. You can read more about August retail sales in a Reuters article in the New York Times.
- Consumer confidence dropped as consumers are becoming wary. Signs are popping up everywhere that consumers are becoming more cautious. You can read more about falling consumer confidence in a Reuters article in the New York Times.
Both of these reports are on top of the recent jobs report where the economy lost 4,000 jobs when it was projected to gain 100,000 jobs and of course there’s the whole sub-prime mortgage mess. When you start adding up all of these factors, it points to an economic downtown. To what degree (is it a slowdown or will it turn into a full-blown recession?) has yet to be seen.
Wall street is now putting the odds of recession at one in three. However, as long as inflation is kept in check, which it should be when the fed will likely lower interest rates next week, and as long as job wages keep ahead of inflation, consumer spending should only retract mildly, making a full-blown recession less likely.
For retailers, we can only hope that happens.
THE REAL WORLD RETAILING TAKEAWAY
I’m a pretty positive guy, but I’m also a realist. There’s a difference between being an optimist and being a realist. Optimists look for the sunny side and often bury their heads in the sand when they don’t like what they hear. That way, they don’t have to admit to themselves that something isn’t really happening. Realists can be optimists too. They like the sunny side but realize that sometimes storms approach. It’s called reality.
Given the two latest reports above plus the jobs report, there is absolutely a storm on the horizon. Whether it hits your city or not has yet to be seen. Realists head to the Southwest corner of the basement when the tornado siren sounds. Optimists get caught like Dorothy in a flying house.
Be a realist. Cut expenses, conserve cash and tighten everything up a bit. Forego the urge to spend on assets unless you absolutely have to. If you don’t know it, figure out your baseline fixed expenses on a monthly basis. How much do you need in sales revenue in order to cover your fixed expenses to keep the doors open and the lights on? That will help you gain greater awareness of the sales you can lose if the economy goes south.
Check out my post from a few days ago for more ideas on how you can prepare for a potential downturn.
What are you doing to protect your business during this stormy weather?