According to an article posted on TheStreet.com, poor people are dampening our country’s economic recovery because they’re not spending as much as needed to keep retail activity pumped up. In a September 17th. article entitled “If the Poor Go Broke,” Wall Street analysts are fretting over “the spending power of low-income Americans”, which seems to be an oxymoron. The theory is that President George Bush’s tax cuts are petering out, and poor people just don’t have more money to spend. Retail spending trends suggest that “the less affluent” are letting the rest of us down. Of concern is “the dissipating impact of tax stimulus,” which, according to The Tax Policy Center, put in the pocket of the average American household a $671 benefit last year from the 2003 tax cuts. This was supposed to stimulate more consumer spending, that would tick up around July of 2003. But now the retail revenue streams seems to have dried up, and analysts warn that “the ability of tax relief alone to drive results in chain stores is probably over.” In other words, the 2003 tax cuts have run their course, “and the large swath of the retail sector that relies on poorer customers for sales growth could have a problem.” Retail sales in June, July and August of 2004 have been off, suggesting that a year after the tax cuts began working, poor people just aren’t pulling their share of the weight any more. The richest discounters, like Wal-Mart, have been getting less income from poor people. Wal-Mart’s sales at stores that have been open at least a year in June increased 2.2%, down from last year’s 2.7%. In July, “same store sales” hit 3.2%, down from 4.6%; in August, it shrank to 0.5%, compared to 6.9%. Now that low-income people have spent their “child tax rebates,” Wal-Mart is feeling pinched. This declining retail spending by poor people is starting to have an effect on Wall Street recommendations. One analyst suggested that investors should “avoid the stores that presently cater to the lower economic strata.” TheStreet.com article suggests that the President’s tax policy has helped the “upper end” of taxpayers “very nicely”, “while middle- to lower-income people are not doing that well.” So the problem, in fact, may not be squeezing low-income people for money they just don’t have, but getting the upper class to shell out more. “There’s no question that the Bush tax and business strategies have been geared toward the upper class,” one investment strategist explained. Rising energy prices are also crimping poor people’s contribution to retail growth, and low-income people can’t find decent paying jobs — a circular argument if there ever was one. “Low-end consumers are the people who can’t find jobs now, or who are looking for jobs,” one retail consultant concluded. “The upscale customer base is not worried about their jobs, and to the extent that they may be worried about their jobs, they also know that if they lose their job for one reason or another, they can easily replace it with another, maybe even better, job.” So investors who are expecting poor people to help lift the price of Wal-Mart stock, may not be able to count on those unpredictable “low-end” consumers.
What can you say about the strength of the economy when Wall Street “investment strategists” have to focus their attention on why poor people aren’t spending more money, and the connection they define between the success of Wal-Mart, and giving low-income folks more tax cuts. If investors want to stimulate spending at Wal-Mart, government officials should squeeze the “high end” consumers more, and then transfer that income to the poor, in the form of more tax credits, leaving them with more discretionary income. Has anyone got the phone number over at John Kerry headquarters?
