Randolph Kinney
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Skewed views
If the rich are doing so well, how much worse off are the rest of us?
By Thomas Kostigen, MarketWatch
Last Update: 7:07 PM ET May 23, 2006
SANTA MONICA, Calif. (MarketWatch) -- If the rich rule the world or at least the U.S. economy, then why not track their spending to determine inflation?
That is the premise of a private bank's recent commentary, which analyzed sales at Neiman Marcus, the high-end retailer, to glean capital market insight. It's an unusual -- a la "Freakonomics" -- take on traditional inflation measures because it clocks spending by wealthy consumers as opposed to all consumers.
The theory is that recently reported economic data look pretty good, but are skewed because they don't accurately portray general well being. Here's why: The wealthiest consumers in this country account for the majority of spending. Therefore, any falloff by lower income households will be overshadowed. In other words, the economic effects of, say, gasoline prices on the poor and middle class won't be made as apparent by looking at general economic data. Other indicators have to be consulted to get a true portrait of the U.S. economy and where it's headed.
Jack Ablin, chief investment officer at Harris Private Bank in Chicago, notes that "generally, reported economic data looks pretty good. But issues prevail. Over the past few years, several issues have widened the gap between high- and low-income households, with gasoline prices chief among them."
"And pump prices aren't the only factor weighing on the American work force 'divide.' Globalization and immigration are additional wedges. Over the last five years, the average hourly nonfarm wage rate as measured by the Bureau of Labor Statistics is flat when adjusted for inflation. Over the last three years, real wages have actually declined."
To better gauge the discrepancy in the economy and hence the "skew" in economic data, Ablin got creative. "We tracked same-store sales growth of Neiman Marcus, an exclusive department store that caters to the well-heeled, against a similar metric at Family Dollar, a low-entry-point discount store that serves low-income customers."
The results, Ablin says, were stunning: "Neiman Marcus sales growth has consistently outpaced sales growth at Family Dollar since April 2003, the point at which gasoline prices began their multiyear surge."
This means a bigger segment of the population is being forced to go on defense. No wonder tax cuts for the rich remain cornerstones of tax policy and President Bush has to take aim at teenagers instead (for whom taxes will increase). There is no wiggle room left for prosperity; it is fully in the hands of people who can afford a $175 Petunia Picklebottom diaper bag!
High end holding up?
If these indulgers starting hoarding, look out -- troubled economic times are coming. Because of the wage pressure and gas price increase, the work force is "biting its collective nails," as Ablin puts it. Moreover, he says investors are uneasy.
"Bond investors are becoming worried about inflation -- and why not? Energy prices have spiked, the dollar has weakened and we're beginning to hear anecdotal evidence of price increases. The five-year implied inflation rate using inflation indexed Treasuries is now 2.7%. That's mild by historical standards, but is up markedly from the rate of 2.2% registered at the beginning of the year," Ablin says.
"Stocks that had routinely beaten estimates in the past were slammed for simply meeting expectations. Several strong momentum stocks suddenly lost their thrust and plummeted like a cartoon character running off the edge of a cliff. Aetna, for example, having easily outpaced that market over the last 12 months by consistently beating estimates, was pummeled the week of May 1st after meeting expectations."
All told, this adds up to stock-market investors getting edgy.
Federal Reserve Board Chairman Ben Bernanke told the Senate Banking Committee Tuesday that "there are a lot of factors that are entering into the stock market, among them some reduction in the desire to bear risk, some change in the evaluation in the global economy and also some concerns about inflation."
He said there is about a month before the next Federal Open Market Committee meeting, where interest rates are determined. "We will be watching that data very carefully," Bernanke said.
He may want to also begin eyeing Neiman Marcus' famous catalogs, where in years past you could find everything from race cars to race horses. The next issue may just showcase inflation.
If the rich are doing so well, how much worse off are the rest of us?
By Thomas Kostigen, MarketWatch
Last Update: 7:07 PM ET May 23, 2006
SANTA MONICA, Calif. (MarketWatch) -- If the rich rule the world or at least the U.S. economy, then why not track their spending to determine inflation?
That is the premise of a private bank's recent commentary, which analyzed sales at Neiman Marcus, the high-end retailer, to glean capital market insight. It's an unusual -- a la "Freakonomics" -- take on traditional inflation measures because it clocks spending by wealthy consumers as opposed to all consumers.
The theory is that recently reported economic data look pretty good, but are skewed because they don't accurately portray general well being. Here's why: The wealthiest consumers in this country account for the majority of spending. Therefore, any falloff by lower income households will be overshadowed. In other words, the economic effects of, say, gasoline prices on the poor and middle class won't be made as apparent by looking at general economic data. Other indicators have to be consulted to get a true portrait of the U.S. economy and where it's headed.
Jack Ablin, chief investment officer at Harris Private Bank in Chicago, notes that "generally, reported economic data looks pretty good. But issues prevail. Over the past few years, several issues have widened the gap between high- and low-income households, with gasoline prices chief among them."
"And pump prices aren't the only factor weighing on the American work force 'divide.' Globalization and immigration are additional wedges. Over the last five years, the average hourly nonfarm wage rate as measured by the Bureau of Labor Statistics is flat when adjusted for inflation. Over the last three years, real wages have actually declined."
To better gauge the discrepancy in the economy and hence the "skew" in economic data, Ablin got creative. "We tracked same-store sales growth of Neiman Marcus, an exclusive department store that caters to the well-heeled, against a similar metric at Family Dollar, a low-entry-point discount store that serves low-income customers."
The results, Ablin says, were stunning: "Neiman Marcus sales growth has consistently outpaced sales growth at Family Dollar since April 2003, the point at which gasoline prices began their multiyear surge."
This means a bigger segment of the population is being forced to go on defense. No wonder tax cuts for the rich remain cornerstones of tax policy and President Bush has to take aim at teenagers instead (for whom taxes will increase). There is no wiggle room left for prosperity; it is fully in the hands of people who can afford a $175 Petunia Picklebottom diaper bag!
High end holding up?
If these indulgers starting hoarding, look out -- troubled economic times are coming. Because of the wage pressure and gas price increase, the work force is "biting its collective nails," as Ablin puts it. Moreover, he says investors are uneasy.
"Bond investors are becoming worried about inflation -- and why not? Energy prices have spiked, the dollar has weakened and we're beginning to hear anecdotal evidence of price increases. The five-year implied inflation rate using inflation indexed Treasuries is now 2.7%. That's mild by historical standards, but is up markedly from the rate of 2.2% registered at the beginning of the year," Ablin says.
"Stocks that had routinely beaten estimates in the past were slammed for simply meeting expectations. Several strong momentum stocks suddenly lost their thrust and plummeted like a cartoon character running off the edge of a cliff. Aetna, for example, having easily outpaced that market over the last 12 months by consistently beating estimates, was pummeled the week of May 1st after meeting expectations."
All told, this adds up to stock-market investors getting edgy.
Federal Reserve Board Chairman Ben Bernanke told the Senate Banking Committee Tuesday that "there are a lot of factors that are entering into the stock market, among them some reduction in the desire to bear risk, some change in the evaluation in the global economy and also some concerns about inflation."
He said there is about a month before the next Federal Open Market Committee meeting, where interest rates are determined. "We will be watching that data very carefully," Bernanke said.
He may want to also begin eyeing Neiman Marcus' famous catalogs, where in years past you could find everything from race cars to race horses. The next issue may just showcase inflation.
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