My wife's business actually sells widgets. It is a micro-business, not even receiving her full time attention. She has no employees. And she just might be seeing, on a micro scale, the turn around of the American and global economies.
She makes jewelry. Most of what she sells she designed and is made specially for her by foundries. She packages the pieces and sells them wholesale to non-profit groups that use them either as fundraisers or for reward gifts. A good number of retail stores also buy from her. Almost everything she sells wholesales for $4 each. See her jewelry site.
When the faux-Depression panic hit last fall she noticed many of her customers ordered less than they had in the past, or not at all. Worried that she might get stuck with a bunch of inventory, she curtailed orders to her suppliers. We discussed it. I voted for keeping a good inventory because it is a microbusiness; the inventory value is pretty small, so the real risk is not having enough to keep customers happy when they do order. Her vote, the one that counts, was to do minimal reorders. Only reorder when actually out of an item. This can be a problem because is can take 6 weeks to get the foundry to fill an order for more parts.
Here we are in April, and she is complaining that all her money is going to be used to restock her inventory. She has almost lost large orders because of not having enough items in stock.
So now the foundries - she uses an American pewter specialist and an American glass blower - have orders from her. These are small businesses too, so even at her scale, that has an impact. They seem pleased to get the orders.
The economic statistics keepers tell us that business inventories have declined a lot since 2007. The question seeing these aggragate statistics does not answer is: are inventories low or high? Of course some businesses did not cut inventories enough, and may still be still cutting. Others must be finding themselves in the same position as my wife: they were too careful, too cautious. They need to restock.
With unemployment still growing, we can't be sure that we won't need another round of inventory cuts. But there are scattered reports that some of the companies that laid off people early are understaffed. For a while that will mean overtime expenses, but eventually it makes more sense to start hiring again.
I went to the birthday party of a retail store in Gualala (California) last Saturday. It was having a 40% off sale, that day only. The stuff there is what I call luxury items, optional items. Thrifty people don't shop there. I expected a gloomy party where people ate free food and drank free champaign and nothing much sold. Instead there was a line of women snaking through the store. They were clutching items they had been desiring for months. The platters of cheese and cupcakes were almost ignored. The demand is there; people who have not lost their jobs are looking for an excuse to spend.
More than 8% of the workers in America may be unemployed, but senior citizens are mostly just fine. Most followed the advice of conservative financial planners and got out of risky investments as they aged. Their CD's may not pay high interest rates these days, but the money is there to be spent if they want to.
I think American consumers have shown more restraint than they are capable of in the long run. I am all for thrift and restraint. I think you should avoid buying things on credit. But there are still plenty of American families with strong balance sheets, and there are more of them after a year of restraint.
I think we are going to see good consumer demand from March, and growing demand in April and May, taking the unemployment rate into consideration. Retail stores will be among the first to rehire, and in many areas new housing construction looks like it is on the agenda.
We could have avoided this down cycle by being less exuberant in the up cycle, but that is not the American way. We party hard and we crash hard. We are happy to leave it to the Fed and Congress to try to balance things out.
We have short memories. We forgot the tech bubble and jumped into the housing bubble. We'll forget this economic lesson in a few years as well.
Buy low, sell high. It is great for the professional investor, but we know what the masses will do. They sold when they were scared, when the market was low. Then they won't buy back in until they feel they are missing the new party.