Starting Points: retailers

Dec 29, 2009

This holiday season, Web sales are retailers' biggest gift

By Frank Ahrens
Washington Post Staff Writer
Tuesday, December 29, 2009; A11

Consumers spent a little more than anticipated during the holiday season, according to a report out on Monday, and a significant e-tail threshold may have been crossed on Christmas Day at Amazon, the online bookseller.

For the first time ever, online sales of e-books on Christmas Day exceeded sales of physical books at Amazon, the company said on Monday.

Overall, retail spending from Nov. 1 to Dec. 24 rose 3.6 percent compared with the corresponding period last year, according to MasterCard's SpendingPulse survey, which tracks all retail spending, including cash transactions.

The increase was partly attributable to one extra shopping day in 2009. Even removing that day, retail spending still beat last year's performance, when recession-dampened sales slumped 2.3 percent compared with the 2007 period.

This year's results also bested expectations, which forecast a 1 percent slump in holiday spending across November and December, compared with last year's historically bad results.

"While up is good, it wasn't going to take much" to beat 2008 holiday spending, said Miller Tabak equity strategist Peter Boockvar. "Things are better but still sluggish, and consumers are still fervently looking for sales."

Boockvar pointed to reports Monday of people returning gifts in exchange for cash to buy necessities as "a sign that the labor market and people's pocketbooks are still very uncertain."

According to government data, consumer spending makes up about 70 percent of U.S. gross domestic product. The biggest jump in 2009 holiday retail spending happened online, where purchases rose 15.5 percent compared with last year, the survey said. They now account for about 10 percent of all retail sales.

Image via CrunchBase

Contributing to the online surge were electronic book purchases from Amazon, meant for use on the company's Kindle reading device.

Amazon, however, does not release sales figures on Kindle sales, nor on e-books sold on Christmas Day.

Using built-in wireless technology and an electronic display, the Kindle lets users download digitized books, blogs, magazines and newspapers in almost any location and read them on the device's six-inch screen immediately.

Amazon introduced the Kindle in 2007. The peak in e-book purchases on Christmas Day indicates that a number of Kindles were given as Christmas presents and were used to buy books that day. In a release, Amazon chief executive Jeff Bezos called the Kindle, which sells for $259, the "most-gifted item ever in our history."

On a wider scale, the uptick in holiday spending came from electronics, jewelry and footwear, which combined to make up more than 16 percent of all sales, MasterCard said.

Sales at department stores dipped 2.3 percent, MasterCard said.

MasterCard's online sales report was backed up by data from comScore on Monday, showing that November online spending rose 10 percent measured against November last year. This year, consumers geared up for the holidays buying $12.3 billion worth of goods over the Internet.

Image by Yupa1 via Flickr

On 2009's "Cyber Monday" -- the first business day after the Thanksgiving weekend, when a surge in online sales is typically expected -- spending rose 5 percent, with half of all sales coming from work computers, comScore said.

But on Black Friday -- the day after Thanksgiving, which is thought of as a big, brick-and-mortar retail spending day -- online spending actually rose 11 percent compared with November 2008, comScore said.

Online sales hit a one-day high of $913 million on Dec. 15, comScore reported, the first time they have topped the $900 million mark.

Monday's positive retail news pushed stocks modestly higher. The Dow Jones industrial average rose 0.26 percent to close at 10,547.08. The broader Standard & Poor's 500-stock index rose 0.12 percent to close at 1127.78 and the tech-heavy Nasdaq composite index climbed 0.24 percent, reaching 2291.08.

With three days left in the trading year -- and decade -- the Dow is up 20 percent, the S&P 500 is up 25 percent and the Nasdaq is up 45 percent year-to-date.

Aug 3, 2009

China's Gains in Manufacturing Stir Friction Across the Pacific

By TIMOTHY AEPPEL

China is on its way to surpassing the U.S. as the world's largest manufacturer far sooner than expected. The question is, does that matter?

In terms of actual size, the answer is, no. But if size is a proxy for relative health of each nation's sector, the answer is yes.

Anyone who walks the aisles of a U.S. retailer might think China already is the world's largest manufacturer. But, in fact, the U.S. retains that distinction by a wide margin. In 2007, the latest year for which data are available, the U.S. accounted for 20% of global manufacturing; China was 12%.

The gap, though, is closing rapidly. According to IHS/Global Insight, an economic-forecasting firm in Lexington, Mass., China will produce more in terms of real value-added by 2015. Using value-added as a measure avoids the problem of double-counting by tallying the value created at each step of an extended production process.

As recently as two years ago, Global Insight's estimate was that China would surpass the U.S. as the world's top manufacturer by 2020. Last year, it pulled the date forward to 2016 or 2017.

"The recent deep recession in U.S. manufacturing does mean that China's catch-up is occurring a few years earlier than would have been the case if there had been no recession," says Nariman Behravesh, the group's chief economist.

U.S. manufacturing is shrinking, shedding jobs and, in the wake of this deep recession, producing and exporting far fewer goods, while China's factories keep expanding. If manufacturers on both sides of the Pacific were thriving, there would be little reason to butt heads. But given the massive trade gap between the two nations and uncertainty in the U.S. over when and to what degree manufacturing will recover, China's ascent has become a point of growing friction.

Chinese manufacturing activity continued to tick up in July from the previous month, data from the China Federation of Logistics and Purchasing showed Saturday. The Purchasing Managers Index edged up to 53.3 in July, from 53.2 in June and 53.1 in May.

Many economists argue that the shrinking of U.S. manufacturing -- both in terms of jobs and share of gross domestic product -- is a normal economic evolution that started long before China emerged as a manufacturing powerhouse. From their point of view, the shrinking would happen regardless and is actually a sign of health that the sector doesn't need to be big to be productive and is shedding low-skill jobs and creating select higher-skill ones.

Global Insight's Mr. Behravesh is one of those who views China's rise as normal, even healthy. "In the natural course, countries go from agriculture to manufacturing to services," he says. "To subsidize manufacturing pushes [the U.S.] backwards down that curve."

But another school of thought -- one known by the somewhat backhanded label of "manufacturing fundamentalists" -- contends the U.S. decline isn't natural and must be reversed to retain America's economic power. From their perspective, that necessitates fighting Chinese policies that fuel low-cost exports, swamping a variety of industries from textiles to tires.

"The notion that we can be a nonmanufacturing society is folly," says Peter Morici, an economist at the University of Maryland. "It's pseudo-science that gives rise to the collapse of civilizations."

The Obama administration is stepping carefully through this minefield. At a two-day conference last week, the first meeting of a new forum designed to foster closer cooperation between the two countries, China's tightly managed currency policy was barely discussed even though it is a hot-button issue for many U.S.-based producers and organized labor. They argue that China undervalues its currency to gain a competitive advantage for its exports, which sell at a lower price in the U.S.

The U.S. Business and Industry Council, which represents U.S.-based manufacturers, accused the Obama administration of "panda-hugging." The administration earlier this year softened its stance on the issue when it declined to label China a currency manipulator.

John Engler, president of the National Association of Manufacturers, says he doesn't expect China to surpass the U.S. before 2020. "It may or may not continue to grow so rapidly," he says. "The importance of the China challenge to the U.S. depends on how we respond to it," such as implementing tax and investment policies that encourage domestic producers to expand.

Mr. Engler's group faces a delicate issue of its own regarding China: Many of its powerful members produce in China and are eager to avoid controversy on trade issues, while the group's large roster of smaller members are often outspoken critics of China.

Even in its weakened state, manufacturing remains a surprisingly large part of the U.S. economy. The sector generates more than 13% of the nation's GDP, making it a bigger contributor to the economy than retail trade, finance or the health-care industry. In China, manufacturing represents 34% of GDP.

Still, the concern remains that U.S. manufacturers now being hit by the economic downturn will never recover. J.B. Brown, president of Bremen Castings Inc., a family-owned foundry in Bremen, Ind., says the downturn has halted what had been a hopeful trend that emerged last year of work returning to the U.S. from China.

"I see a lot of people starting to look at going overseas again," he says, in part because costs are rising in the U.S. even in the depth of this recession. He notes, for instance, that Bremen's electricity rates jumped 17% this year -- and the company has been warned they could increase even more next year. Foundries like Bremen use large amounts of electricity to heat metal.

Write to Timothy Aeppel at timothy.aeppel@wsj.com