Economy

Ok, somewhat unrelated. At times when I'm not making money at the store, I pay more attention to the economy. You've got some time between customers during the slow period. The best thing to do would be to come up with a promotional program, clean, research or re-arrange displays, but sometimes I'm looking for someone else to blame.

The weather can be blamed sometimes. If it's extremely hot or there's a storm warning, people won't shop. In Northern California, a simple rain can throw people off. Power outages are too localized, even though we seem to have them on a regular basis nowadays. When I experienced power outages regularly when visiting India and Nepal, it made an indelible impression upon me: This is the experience of an impoverished country. When it happens here regularly, when people know what power "zones" their in, it concerns me deeply. A country should be able to keep the lights on.

Beyond obvious external things to blame is the economy. It's such a vast stew of facts and figures you can easily fall into the worry game. Is the stock market up or down? Is the housing market up or down? Did the Fed chairman signal something when he picked his nose? Is it an indication that interest rates are going up? Is that good for me or bad for me? Perhaps it's good for me and bad for my customers?

It's the housing market and the default rate that everyone's stirred up about now. So I was talking with some folks last night, including an economist, about the California housing market. California has the second highest mortgage default rate in the nation. It's tightening up home ownership requirements. One of my customers is about to lose their house. It's a long-term concern for me. The press hounds loves this story and it's in all the news sources I read and listen to (no TV nowadays).

It has the secondary impact of pressuring renters. This seems to make little sense, but it works like this: Home owners are defaulting. They're moving out of their houses to rent places. This causes rents to go up. So rents are going up AND houses are losing value? It seems to be out of balance.

Back to my conversation in the store. As we sat late last night in the game room and talked about this, I asked them what they think the default rate is for California. One guy thought it must be as high as 50%. Our economist thought probably around 5%. Before I read the Economist stats, I would have guessed between 5-20%.

California with the second highest foreclosure rate in the nation (very close to tying with Texas), has one in every 500 mortgage holder in foreclosure. That's tiny! That's .2 percent. When the press talks about soaring foreclosure rates, just know that it's gone from around .1 to .2%. It's the bad sub-prime loans that are around 5%, but that's factored into the above rate.

The general impression I get from long time retailers is this: As long as your customer has a source of income of any kind, they will spend some of it in your store. Rain or shine, war or peace, bad economy or good economy. The exception is catastrophe, like alien invasion, Katrina or the one that killed retail sales all the way to the Bay Area, 9-11.