Black Friday and Cyber Monday Retail Sales: What they suggest about consumer confidence, prospects for job creation, and the overall US economy.


  • Mark Zandi Chief economist of Moody's Analytics and author of "Financial Shock" and the forthcoming book, "Paying the Price."
  • David Wessel Economics editor, The Wall Street Journal; author "In Fed We Trust"
  • Scott Krugman Vice President, National Retail Federation.
  • Paco Underhill Founder and CEO of Envirosell, Inc. He is the author of 'Why We Buy' and 'Call of the Mall.'


  • 10:06:54

    MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Many retailers were offering deep discounts this season to lure shoppers back into a spending mode. Cyber Monday, Black Friday and other retailing strategies can make a critical difference in annual sales figures. Sales forecasts are trending higher, but it's unclear how much overall economic cheer there will be. Joining me in the studio to talk about consumer spending and the economy, David Wessel, he's economics editor for The Wall Street Journal, Scott Krugman of the National Retail Federation. Joining us from a studio at NPR in New York City, Mark Zandi of Moody's Analytics.

  • 10:07:53

    MS. DIANE REHMAnd, of course, I'm interested in your experiences, both this past weekend, this week, join us, 800-433-8850. Send us an e-mail to Feel free to join us on Facebook and Twitter. Good morning to all of you.

  • 10:08:20

    MR. DAVID WESSELGood morning, Diane.

  • 10:08:21

    MR. SCOTT KRUGMANGood morning.

  • 10:08:21

    MR. MARK ZANDIGood morning.

  • 10:08:22

    REHMAnd, Scott Krugman, if I could start with you, how did retailers do this past weekend?

  • 10:08:30

    KRUGMANI think retailers were very happy with the results they saw this weekend. Early polling from NRF show that average consumer spending was up 6 percent over the same period a year ago, so, clearly, the promotions that we're seeing, the discounting that we're seeing, is working. I think consumers, they do have spending power. They're not confident yet, and that's why it's taking the discounts to get them out to the stores.

  • 10:08:56

    REHMAnd what about the projections for today?

  • 10:09:00

    KRUGMANWell, today, we expect more than 100 million shoppers to be out online for Cyber Monday. The Monday after Thanksgiving is quickly becoming one of the busiest online shopping days of the year. So where Black Friday is a ceremonial kickoff to the traditional retail shopping season, Cyber Monday is quickly becoming the ceremonial kickoff to the online shopping season.

  • 10:09:27

    REHMAnd, Mark Zandi, how critical is this holiday shopping season to the annual net profits of most retailers?

  • 10:09:40

    ZANDIIt's very important. The sales that occur in November and December account for 20, 25 percent of total retail sales during the year. So it sets the tone for the coming year. They -- the retailers need a good holiday season to set them up for the coming year.

  • 10:09:58

    REHMAnd, David Wessel, how important are these retail sales to the overall economy?

  • 10:10:06

    WESSELWell, they're important, but they're not the whole ballgame, of course. Consumer spending is a big part of our economy, and it's been weak lately. Growth has been weak lately for obvious reasons. Consumers spend on a lot of things beyond Cyber Monday and Black Friday. They have homeowner costs, cars, gas stations, food stores and stuff like that. I think the reason people pay so much attention is this seems to be the discretionary spending people have. You know, do you buy an extra suit? Do you buy a flat screen TV for your mother-in-law for Christmas? And people watch it for that reason.

  • 10:10:42

    WESSELI think one thing that's always interesting is that, of course, this creates a lot of energy in the economy, a lot of jobs in retailing and wholesale distribution and transportation. But a lot of the stuff that we are buying these days is made abroad, so this is important not only to our economy but to manufacturers in other countries.

  • 10:11:00

    REHMDavid, help me to understand why with all the success that retailers have had this past weekend, why is the stock market down this morning?

  • 10:11:12

    WESSELOh, Diane, if I really understood why the stock market moved up and down any day, I wouldn't be doing radio shows.

  • 10:11:19

    REHMI think it's baffling. Don't you think?

  • 10:11:21

    WESSELBut let's -- the day-to-day movements in the stock market aren't very important. And what we, as journalists, often do is we look at what happens to the market, and then we look at happen in the world. And we try and draw a dotted line between them, and the person who makes the strongest dotted line wins the argument. But let's think a little bit about what's going on in the world economy. We have been through an extraordinarily rough period the last couple of years. And if you were pessimistic, you were never pessimistic enough.

  • 10:11:50

    WESSELIn the spring, as the world economy seemed to be getting some momentum, Europe went haywire. And everything took -- everybody took a break, not so much because what happened in Greece really mattered to the retailer across the street here or to what you and I buy, but it kind of made anybody kind of scared. And they said, oh, my god, are we going to go through this again? And I think a little of what's going on today is that the Europeans are once again trying to figure out how to keep their economy going, and that makes people nervous. And when people are nervous, the stock market goes down.

  • 10:12:20

    REHMDavid Wessel, he's economics editor at The Wall Street Journal and author of "In Fed We Trust." Do join us, 800-433-8850. Scott, give us a sense of the trends in retail spending, 2008 to now.

  • 10:12:44

    KRUGMANSure. I think you've seen a consumer that's been basically shell-shocked -- focusing very much on necessities -- because they're nervous about what comes next. I spoke very briefly that over the last couple of years, we've seen consumers do a fairly decent job in terms of savings and paying down debt. But they still haven't been spending, and a lot of that has been linked to the unemployment rate. A consumer might have a job, but their concern is, will I continue to have a job?

  • 10:13:11

    KRUGMANSo, I think, while we've seen a lot of spending over the weekend -- and a lot of it was indeed discretionary -- that came from the pent-up demand and out of the fear to spend. And in absence of consumer confidence, what really seemed to do the trick was discounts, and that's why you saw retailers so heavily promotional, not just this weekend but in the weekends leading up to the Black Friday event in order to loosen up those purse strings.

  • 10:13:37

    REHMSo, Mark Zandi, how has the recession changed the way people buy?

  • 10:13:46

    ZANDIWell, I think it's changed their perspective on saving and spending. I mean, just to give you a number, if you go back in the early 1980s, the saving rate was about 10 percent. We -- so we saved about 10 percent of our after-tax income. That fell to essentially nothing by the mid-part of the last decade. And because of this recession and because of the caution that that's created among consumers, the saving rate now is right back up to 5, 6 percent. We're not back to where we were in the early '80s, but we're probably headed in that direction.

  • 10:14:15

    ZANDIIn my view, what we've been through this recession marks an inflection point for people's thinking about their spending and saving behavior. They're just going to save a lot more. So that doesn't mean we won't get consumer spending growth -- unless we're going to get growth this Christmas -- but consumers aren't going to lead the way. They're going to follow.

  • 10:14:33

    REHMSo how does -- David Wessel, how does the unemployment rate track with retail spending?

  • 10:14:44

    WESSELWell, unemployment has a lot to do with how much income people have, and when people don't have income, there's less money to spend. So unemployment and the prospect for a long period of high unemployment are a very dark cloud over the retail spending horizon. So that's one thing. The second thing is that the people who spend are the people who have money. And in this period, a number -- there are winners in the economy now, and those people are spending. Some of the luxury good retailers, for instance, have been reporting pretty good results. So it's definitely a minus, but clearly there were people in the malls over the weekend, even though we have 10 percent unemployment -- or 9.6 percent and no prospect of it coming down.

  • 10:15:27

    REHMAnd how much of this retail spending is going to be online spending, Scott?

  • 10:15:36

    KRUGMANWell, online spending is roughly 7 to 8 percent of total retail sales, but we shouldn't think of it as traditional versus online. So many retailers are employing a multi-channel approach to retailing. They don't care if you shop online or in the store -- even via your mobile phone. They just want you to shop with them.

  • 10:15:56

    REHMWell -- but people are shopping in narrow and narrower sort of venues. Are they not going to fewer and fewer stores where they know they can get reliable goods?

  • 10:16:13

    KRUGMANWell, I think where the internet has really helped the consumer is from a research mechanism. There's a difference between shopping and buying. So now more than ever, the consumer is going into the store armed with more information about the merchandise, about the pricing, and I think that's really kept retailers on their toes, in terms of being smarter about their pricing strategies. So the consumers have certainly benefited from a wide variety of shopping channels, but, clearly, the internet has revolutionized the way consumers shop.

  • 10:16:44

    REHMMark Zandi, we've heard an awful lot about corporate profitability. What's the connection there between corporate profitability and hiring? Have the corporations begun to use that profitability to turn around and ease unemployment?

  • 10:17:07

    ZANDIWell, not to the degree that we'd like to see. Businesses are very profitable in aggregate. Smaller businesses aren't doing quite as well as very large companies. But in aggregate, the corporate profits are back to where they were before the recession. And in fact, that's -- it's the only statistic that's back to where it was prior to the economic downturn. You can look at jobs, industrial production, retail sales -- anything you'd like -- but profits are back. Businesses are beginning to hire a bit more. The private sectors created over a million jobs since the beginning of the year.

  • 10:17:40

    ZANDIBut they haven't really stepped up and used their financial resources, at least not to the degree that we need to see. Now, I would expect that to occur slowly with time over the coming year. I think many businesses are just shell-shocked from what we've been through. They're very nervous. The policy uncertainty, I think, has played a role with respect to their hiring decisions, and, I think, these concerns are going to begin to fade. And by next Christmas, I think we'll see meaningfully better job creation and probably even a better Christmas than the one we get this year.

  • 10:18:13

    REHMDo you agree, David?

  • 10:18:15

    WESSELWell, you know, I -- it's -- the scary thing is that the good news is always over the horizon.

  • 10:18:20


  • 10:18:21

    WESSELI think it's clear that things are getting better, but they're getting better so slowly that even the optimists seem to expect us to go two or three more years before we get unemployment down to something that we would consider normal full employment. And that's a long time.

  • 10:18:37

    REHMDavid Wessel, economics editor for The Wall Street Journal. We'll take just a short break. When we come back, your questions, comments. Stay with us.

  • 10:20:03

    REHMAnd welcome back. We are talking about the economy in this age of shopping. We had lots of enticements over the weekend from stores. Retailers are very pleased with the past weekend and again, today, looking forward to big sales online shopping. Here in the studio, Scott Krugman. He's vice president of the National Retail Federation. David Wessel, he's economics editor of The Wall Street Journal and author of "In Fed We Trust." On the line with us is Mark Zandi.

  • 10:20:45

    REHMHe's chief economist of Moody's Analytics and author of "Financial Shock." We will open the phones very shortly. Join us on 800-433-8850. Here's a message on Facebook from Greg. He says, "It's unfortunate we're being misled about the success of our economy. We're being told we need to spend -- not save -- for our economy to recover. But I'm seeing that most of what we have available to buy is made in another country -- no USA investment in jobs, which is the ultimate recovery." David Wessel.

  • 10:21:37

    WESSELWell, the writer raises a couple of questions. One is we do send consumers a kind of confusing message when we tell them, spend now, but not too much because we don't want you to go too much into debt. And by the way, you need to save more for retirement. And so there is a -- it's a bit ambiguous, the advice we give consumers. Of course, what the bottom line is, we need more demand now to get the economy growing. But over the long run, we as a society need to save more. And as Mark suggested, it seems like we've learned that lesson -- at least temporarily -- and people are saving more. You have more income. You can save a little and you can buy some.

  • 10:22:14

    WESSELOn the question of imports, it's always hard for people to understand how it can be to our advantage to buy imports. It seems somehow like we're employing the Chinese rather than our own people. I think there are a couple of things to keep in mind. One is we as a nation benefit from trade, and you can't export to the rest of the world unless you're willing to import. And it's simply not practical or possible to tell other countries, by the way, we want you to buy more of our stuff, but we don't want your stuff. And the second thing is, as the other Krugman -- Paul Krugman -- once said, one reason we export is in order to import. We sell the stuff we make, the stuff we grow, our ideas, our information to other countries.

  • 10:23:01

    WESSELAnd in exchange, we get to buy things that are sometimes cheaper, sometimes better and sometimes different than those we make at home. And so there's a reason that people like to buy stuff from abroad. And, finally, there is, though -- they're not -- globalization is not all winners. There are people in our society who get hurt when factories close and the stuff moves overseas. And we as a country have not done a very good job of equipping them for the jobs that are opening up now or for making the transitions which are very painful. The economists tell us, in the long run, it'll all work out, but we all live in the short run.

  • 10:23:37

    REHMAt the same time, Mark Zandi, it would seem that the balance between what we export and what we import is sort of out of whack at the moment.

  • 10:23:50

    ZANDIIt is. We have a very large trade deficit, about $500 billion annually -- about half of that with the Chinese. Now, we have made significant improvement. If you go back before the recession, the trade deficit was measurably larger. So we're moving in the right direction. And I'm actually quite optimistic here, too, as well. I think the -- if you're an American company and you survived what we went through, you must be doing something right. You have to have a market niche globally. You have to be very cost-competitive. And I think going forward, we're going to see that in the form of better exports, and it's going to be things that we do well already: aircraft, machine tools, agricultural products, the sophisticated instruments, pharmaceuticals.

  • 10:24:36

    ZANDIAnd, increasingly, it's going to be things that we do well but have not exported historically: services, professional services, accounting, legal, architectural, engineering, management consulting services, financial services, health care services. And so I do think our trade situation will -- it's not going to be a straight line, but I think when we look back five, 10 years from now, we're going to see a measurable improvement in our trade situation. And it's going to be a clear positive for our economy.

  • 10:25:05

    REHMAnd here's an e-mail from Matthew in North Carolina. He says, "Why do we concern ourselves with consumer confidence? Confidence is a feeling and not something subject to easy measure. We have very real, very quantifiable statistics that could tell us all we need to know about how much Americans can spend, consumer debt as a percentage of consumer incomes, average salaries as compared to cost of living, et cetera. How consumers feel about spending should not be nearly so relevant as how much spending they can afford." David Wessel.

  • 10:25:55

    WESSELThe reason people pay attention to confidence surveys and such, I think, are twofold. One is, until very recently, it was a way to get an early warning on what people were doing. Now, we have these incredible data collectors. The cash registers at Wal-Mart tell them instantly how much they're spending. So to that extent, consumer confidence isn't much of a measure that we can't get in real spending. But I think the e-mailer is wrong to think that the economy is all made up of numbers.

  • 10:26:21

    WESSELPeople behave in different ways at different times. John Maynard Keynes, the great economist of the 20th century who helped us understand the Depression and how to get out of it, talked about what he called animal spirits, the question of why is it that sometimes businessmen are willing to invest and hire and other times they aren't. And so, I think, we believe now that there's a lot more psychology to the economy than the kind of mechanistic it's-all-about-the-numbers that the e-mailer seems to think.

  • 10:26:50

    REHMAnd joining us now by phone is Paco Underhill. He's a retail consultant and author of several books on shopping behavior, including "Why We Buy." Good morning to you, sir. Thanks for joining us.

  • 10:27:07

    MR. PACO UNDERHILLWell, thank you for having me, Diane.

  • 10:27:09

    REHMTell us what the last few years show us about our consumer culture.

  • 10:27:17

    UNDERHILLWell, we, I think, dip -- retail is the dipstick of social change, that just as we look at what made a good store in 2000 and what makes a good store in 2010 are different, and those are reflections of the changes that are going on in us, Diane.

  • 10:27:35

    REHMAnd to what degree do you think that the economy really has to shrink because it cannot depend on consumer spending?

  • 10:27:49

    UNDERHILLI think to live in a nation where 70 percent of our GNP is based on consumer consumption is unsustainable, that we certainly will eat, drink, we'll clothe our children, we'll drive, we'll take care of our homes, but we simply cannot continue to spend the way we have spent over the past two decades.

  • 10:28:14

    REHMSo what do you think about the era of big-box spending?

  • 10:28:20

    UNDERHILLWell, I think we have reached the apogee of the big-box store, that we can't grow the store or the mall any bigger and get any more time or money out of people's pockets. We're also part of a retail culture which is focused on supply chain management and that we can actually shrink the footprint of the store and actually have that same array or SKUs of products in it.

  • 10:28:47

    REHMScott Krugman, do you agree?

  • 10:28:49

    KRUGMANI couldn't agree more. Growth is -- becomes difficult after a while, and I think where retailers are focusing is more on the innovation piece of it. And that's one of the brilliant things about the retail industry. Especially in a down economy, there is a shift and a focus, not just to discounting, but to true innovation. And I think that's why you've seen retailers become early adopters of such great tools such as social media. I think that's why you've seen them embrace the mobile piece of the industry 'cause it's those innovations that give consumers unique shopping experiences.

  • 10:29:26

    REHMBut what do you think about this big-box store?

  • 10:29:30

    WESSELWell, I think that Paco is really pointing us to something that hasn't been completely absorbed by people, which is if we're going to have a society that is a little more -- an economy that's a little more balanced, globally and domestically, and we're going to save a little more and as a nation we're going to invest a little more in education and stuff like that, and we're going to rely a little less on consumer spending. Then some of the ways our communities are going to look are going to be different, which means that we can't keep growing the number of shopping malls. And we can't have another Starbucks on every corner. At some point, that'll end because otherwise, we -- there -- if it doesn't end, then we won't be doing what we've been told we do.

  • 10:30:11

    WESSELI don't think there's anything good or bad about a big-box retailer. People have different tastes for shopping. Some people want to go to one store and get everything. And I know I've been to a number of rural communities where Wal-Mart has a huge place, and I know that people who run local businesses say they're putting us out of business. But when you look at people who are living paycheck to paycheck, getting the kind of deals that they get because Wal-Mart is so efficient, you realize it's really a double-edged benefit.

  • 10:30:36

    REHMBut, Paco, what about the expansion of Wal-Mart all across the country? We're told that right here in the Washington area, three new Wal-Marts are about to move in.

  • 10:30:50

    UNDERHILLWell, just to remember something about Sam, which is that Sam's, you know, focus customer is a single mother trying to raise her children and trying desperately not to be downwardly mobile. And in that regard, Wal-Mart has been a tremendous crutch to challenge Americans. I think it's unfair to point to the big-boxes and talk about they're killing downtowns. We have known for decades that it is uneconomical to sell dog food and kitty litter and laundry soap on Main Street.

  • 10:31:35

    UNDERHILLOne of the challenges that we have to face is how do we understand what the new city is. And I couldn't agree more with the previous commentator, which is that housing drives change. And as we repopulate our cities, as we decide how we are spending the last third of our lives -- which is what many baby boomers are talking about right now -- retail will have to follow us wherever we go.

  • 10:32:09

    REHMSo what percentage, Paco, of Americans seem to have money to spend?

  • 10:32:18

    UNDERHILLWell, I -- one of the things I'm very cognizant of is that in 2010, it is very easy to collect data. And the challenge becomes here, is having collected all of the data, what does it really mean? I -- my thesis here is that we can basically divide American households into thirds. There are a third of us that have gone through great economic trauma. One or more of the heads of household have lost their jobs. Our houses are underwater. We are in the process of slipping a class. There's another third of American households that has -- is okay, but there is somebody they know or care about that's in that first group.

  • 10:33:10

    UNDERHILLIt might be a parent. It might be a child. And then there are roughly a third of us who are doing just fine. We paid off our mortgages. But we've learned, over the last recession, that conspicuous consumption, particularly in our own backyard, is bad manners. And part of what we're seeing is somebody going to the Mercedes Benz dealer, buying the car, but asking that the badges be taken off. Or they're spending their money at Selfridges on vacation or at Gallery Lafayette in Paris rather than spending it in their own backyard.

  • 10:33:44

    REHMAnd you're listening to "The Diane Rehm Show." So, finally, Paco, what are -- what do you see retailers doing to try to reach out to that last third?

  • 10:34:01

    UNDERHILLI think what we're looking at is convergence, which is merchants have recognized the power of the smartphone, and that, therefore, what we're seeing is the union of a web-enabled phone and bricks and mortar, meaning that somebody can be inside of Macy's and shopping at the same time. So, therefore, what you're seeing is the integration of what used to be the (sounds like) silos. It might be the silo of a catalog, the silo of a store and the silo of online whereas, from the consumer standpoint, those silos are all integrated. And the merchants who get it right are the merchants that are going to survive.

  • 10:34:46

    REHMPaco Underhill, he is a retail consultant and author of several books on shopping behavior, including "Why We Buy." Thank you so much for joining us.

  • 10:35:01

    UNDERHILLMy pleasure, Diane.

  • 10:35:02

    REHMScott Krugman, it sounds as though it's a much more competitive landscape than considering the kinds of tools that consumers have in their hands.

  • 10:35:16

    KRUGMANOh, it's a very competitive landscape, and there are so many different ways for retailers to get their message across to their shoppers. And, again, speaking to the social media piece, I think that's why you've seen a lot of retailers embrace that. It allows them to provide more meaningful conversations or more meaningful messages to their shoppers. Facebook considers a shopper a fan of a retailer, which means a consumer is actually signing up on a retailer's Facebook page because this is a retailer that they love. This is a place -- an experience -- a place where they love to shop. And retailers reward that by providing them information that mainstream consumers might not get in terms of special deals, in terms of special discounts.

  • 10:36:00


  • 10:36:01

    WESSELI think that what Scott mentions is really important, that if you think over the long run, over decades, and you say, what's different about being an American consumer today than it was, say, in 2000 or 1990? The ability of people to use their mobile phone and the internet to shop around, so you -- nobody pays top dollar anymore…

  • 10:36:22


  • 10:36:22

    WESSEL...without -- unless they do it on purpose. If you go -- you know, there's a hardware store in our neighborhood which has great service, and I know they charge more than other places. But it's worth it to me 'cause they always have it, and they can explain to me how to put it on the -- how to screw the thing in.

  • 10:36:35

    REHMRight. Right.

  • 10:36:36

    WESSELBut, except for that, you -- before you go and buy a flat screen TV or a car or something, you come armed with so much information that it has made it much more difficult for retailers or any purveyor of goods or services to kind of rip you off. And that's a big change.

  • 10:36:51

    KRUGMANAnd I'll say -- and this is an excellent point -- whenever -- when you're in an economic environment when everyone is competing on price, the question becomes, how do you stand out? And I think that's where value and service is going to play a role, and retailers that do that part of it right, on top of the prices, are the ones that are going to win in the end.

  • 10:37:08

    REHMScott Krugman, he's vice president of the National Retail Federation. When we come back, we're going to talk about the Federal Reserve's quantitative easing programs and projections for what the Congress may do, not only in its lame duck session but what happens after Jan. 1. Stay with us.

  • 10:40:03

    REHMAnd let's begin this segment by opening the phones. First to Fayetteville, W.Va. Good morning, Kurt. You're on the air.

  • 10:40:14

    KURTGood morning, Diane.

  • 10:40:14


  • 10:40:15

    KURTJust a general comment, but I've just read recently that the corporations have recorded their largest profits, you know, in their recent memory. And given all of the bailouts and the high unemployment, you know, when are we going to see them reinvesting back in America versus just continually taking from Americans?

  • 10:40:38

    REHMMark Zandi.

  • 10:40:40

    ZANDII think we're going to see that more clearly in the coming year. You know, I think it's important to point out that it's not unusual for corporate profits to rise strongly in the early part of a recovery -- in fact, it's very typical. Business is in a recession, cut jobs, cut other costs. They get their profit margins up. You get some fiscal stimulus, a monetary stimulus, a little bit of sales growth, and you mix bigger profit margins with a little bit of sales growth -- you get a lot of earnings growth. And businesses see their earnings growth and the higher stock prices that result from the higher earnings. And they begin to invest, and they begin to hire.

  • 10:41:16

    ZANDIAnd that dynamic is exactly what we see in every recession recovery, and we're seeing it this time as well. It's just playing out a bit more slowly than has usually been the case, I think, largely because of the severity of what we've been through and the impact that it's had on the confidence of business people and also because of all the major policy changes that have occurred over the past couple of years, which makes business people a little bit nervous, too, until they have clarity with respect to what those policy changes means. So I do think that we will see businesses begin to deploy their profits more aggressively in the form of investment and hiring over the coming year, and we will see more job growth.

  • 10:41:56

    REHMAnd, David Wessel, the Federal Reserve's quantitative easing is supposed to spur economic growth and ease unemployment. What are the projections for 2011?

  • 10:42:13

    WESSELWell, the Federal Reserve believes that unemployment is too high and inflation is too low, given the mandate was given to it by Congress. If it could, it would cut short-term interest rates. But it moved them to zero in Dec. 2008, so they can't go any longer -- any lower. So they're doing what they think is the next best thing. They're printing $600 billion worth of money. They're using it to buy long-term treasury bonds in an attempt to push down long-term interest rates -- the ones that companies borrow at and the rates that we pay on mortgages -- and get the stock market up a little bit and the dollar down a little bit.

  • 10:42:51

    WESSELAnd they hope that that'll give the economy a little bit of a lift. There are two camps on this. One camp says it won't work. And if it does work, it's disaster. We'll get too much inflation. And the other camp says, it might work, but even if it does, it's only going to do a little bit of good. The Federal Reserve's internal projections are, it would mean somewhere around 750,000 jobs over the next couple of years. It would bring down the unemployment rate by three-tenths of a percent.

  • 10:43:19

    WESSELIf you're one of the people who gets one of those job, it's a big deal. But it's not enough to get us to the kind of economy we want, which is why you've seen Ben Bernanke, the Fed chairman -- and I suspect you'll see others who are close to him -- talk about how if they could rule the world, they would have Congress do something that none of us think Congress is going to do, which is a package of fiscal stimulus now, tax cuts and spending increases now, coupled with deficit reduction that takes effect in the future in order to give the economy a lift.

  • 10:43:52

    REHMMark Zandi, what do you think we can expect from Congress, in terms of boosting private sector growth?

  • 10:44:03

    ZANDIWell, I think David's right. I don't think we're going to see a lot come out of the next Congress. I mean, there's a lot that's got to happen between now and when the next Congress takes their position. There has to be the decision made about the Bush tax -- era tax cuts. My view is that everyone's -- that the current tax rates are going to be held constant for everyone, that no one's going to see a tax increase, at least not in 2011. And they also have to decide very soon with regard to emergency unemployment insurance benefits, that this is a very important program that roughly eight, nine million people are receiving benefits into this program.

  • 10:44:37

    ZANDIIt expires unless Congress provides more money for that. They have to make that decision shortly as well, and I think they will extend that program for another three, four months. Now, outside of those two things, I don't expect to see much of the way of any additional fiscal stimulus, at least not of any significant consequence. And the only way I would be wrong, would be if the economy would be going south. If things were going very badly, then we might see some stimulus, but, barring that, I don't think we will.

  • 10:45:05

    REHMAll right. To a caller in Avon, N.Y. Good morning, David.

  • 10:45:11

    DAVIDGood morning, Diane.

  • 10:45:12


  • 10:45:13

    DAVIDI had to call in. Thirty years ago, I had an experience with a friend of mine that owned a distributorship through Mobil. And he was buying a case of Mobil 1 oil, just real quick. And I said to him, what are you doing? Did you run out of this oil? And he says, no. He says, I can't buy this, he says, at wholesale what they're selling this at retail. And he says, and this is for my own personal car. I can't buy it to sell at my store. But anyway, the thing is that here we have big-box stores that came in with tax exemptions because they would be hiring people. But yet with these tax exemptions, the people that ended up hiring were the mom and pops stores that they were putting out of business because of this deal with the wholesale retail price.

  • 10:45:59

    REHMScott Krugman, do you agree with that?

  • 10:46:02

    KRUGMANWell, I mean, speaking on a whole, in terms of retail, we are seeing a lot of hiring. Retailers have added roughly 600,000 seasonal jobs, at least for the holiday season -- many of those could become permanent. I think what retailers are looking for right now is a little certainty in terms of tax policy and how that's going to impact business down the line. You know, we speak about deficit reduction, the deficit reduction committee, one of the things that they're considering that's on the table, for example, is the value added tax, something that will bring up prices and reduce consumption. This could have a devastating impact on the retail industry...

  • 10:46:38

    REHMMmm, interesting.

  • 10:46:38

    KRUGMAN...just as consumers are starting to loosen their purse strings. So I think what's holding back not just retailers but other businesses, and retailers -- keep in mind, we employ one in five American workers. One in five jobs are retail jobs. What's holding back some of that hiring is the uncertainty that exists in terms of how their businesses are going to be impacted by future tax policy.

  • 10:46:58

    REHMHere's an e-mail from William who's in Concord, N.H. He says, "I contend all of these gentlemen are ignoring the elephant in the room. I believe people are living paycheck to paycheck because of Wal-Mart and the culture of the big-box. Studies have shown almost without exception that the big marts inevitably lower both employment and wages in the long-run whenever they open. The total absence of loyalty of these companies, anything beyond their own bottom lines, is the death of communities everywhere. Economists should, by now, realize efficiency is much too highly regarded among their trade." David Wessel.

  • 10:47:53

    WESSELWell, so the question is should we prefer a society where we have lots of small retailers who charge more because they're inefficient and pay their workers more? Or do we as a society want to have very efficient stores and -- at the cost of losing some of that uniqueness that we see on Main Street? And I think, unfortunately, for the caller's point of view, American consumers have kind of made their choice. They are -- the only way small stores can compete is if they offer something that people can't get at a big store, and it clearly is not going to be on price.

  • 10:48:39

    REHMBut the...

  • 10:48:40

    WESSELNow, the argument about employment is a really important one. And it doesn't just apply to Wal-Mart, although Wal-Mart often gets accused of it. I mean, it's not like Target or Sam's Wholesale Club are paying people $100,000 a year. Wal-Mart has became a symbol because it's such a big employer of a much broader problem in our society, which is that the combination of weaker unions, of lots of competition among employers, health care cost -- the whole thing has had a down -- has put downward pressure on the wages, particularly of people who don't have very highly sought skills.

  • 10:49:14

    WESSELAnd it's not just happening in retailing. It's happening elsewhere. But I think it's kind of backwards to say we can somehow reverse that by going back to a system of smaller inefficient stores that charge more.

  • 10:49:29

    REHMAnd yet, Mark Zandi, you heard Paco Underhill saying that the era of the big-box store is over.

  • 10:49:40

    ZANDIWell, I don't think he was arguing that we're going to move to retail platforms that are any less efficient. In fact, they're probably more efficient. So, you know, I think broadly in response to the point being made about productivity, that goes to the heart or the growth in our living standards. I mean, at the end of the day, we are a wealthier society if we can raise our -- the productivity growth of our workforce, whether it be in retail, whether it be in wholesale, whether it be in financial services or any other industry. So I think that's the key that makes our economy tick and makes us -- our standard of living greater. And we should embrace that because that is very, very key to our long-term economic health.

  • 10:50:21

    REHMAll right. To Durham, N.C. Good morning, Wynn. (sp?)

  • 10:50:26

    WYNNGood morning, Diane, enjoying the show as usual.

  • 10:50:28


  • 10:50:29

    WYNNEveryone knows that the Obama administration is an anathema of the big business. And call me cynical, but I believe that the corporations are sitting on all the cash they have and are not hiring because they want the self-fulfilling prophecy of high unemployment existing when the 2012 election cycle comes around and Obama is defeated. And they're going to sacrifice millions of American workers' welfare for the sake of the political gain of a Republican presidency starting in 2012.

  • 10:51:06

    REHMDavid Wessel, how much politics are in here?

  • 10:51:10

    WESSELLook, I'm prepared to believe that American big business is a bunch of rapacious, profit-seeking capitalists. And so if the caller is right, these guys have to be acting against their interest, saying they want to have an economy that's very weak for a couple of years in the hopes of electing a Republican president. I just don't believe that's the case.

  • 10:51:33

    REHMWhat about you...

  • 10:51:33

    WESSELI believe that -- but he's right that big business is not happy with Obama, and big business would like to see a change. And that's why they -- companies gave so much money to Republicans, and I'm sure they'll be giving money to Republicans over the next couple of years. But do you really think that a big company would leave profits on the table in 2011 and 2012 on the hope that they can elect a Republican president?

  • 10:51:56

    REHMMark Zandi.

  • 10:51:58

    ZANDIOh, no, I agree. I think David said it very well. I mean, I -- you know, businesses are in the business of making money and a profit. But that means that if they can do it in 2011, they're going to do it. They're not going to give up business just to win an election in 2012.

  • 10:52:13

    REHMAll right. To Cleveland, Ohio. Good morning, Sean.

  • 10:52:18

    SEANGood morning, Diane, and guests. I'm not an economist, but I'd like to ask a question. It seems to me, when companies were paying better wages, people had more money to pump back into the economy. So, in a way, it seems to me that we are shooting ourselves in the foot by just going to manufacturing out of our country just to save a few dollars. When -- if we were doing it here, our own workers would have more money to spend on the products being made, and we would have a better -- more people employed, too.

  • 10:53:00

    REHMMark Zandi.

  • 10:53:03

    ZANDIWell, the way this should work and has worked historically and, I think, will work going forward is that businesses are now quite profitable. They have a lot of cash. They're good -- in good financial shape. And again, I'm speaking in aggregate. Small businesses aren't doing as well as big businesses, but in aggregate. They are beginning to hire more aggressively. I do anticipate that they will hire even more aggressively as we make our way through this time next year into 2012 and '13. This will bring down the unemployment rate. And as the unemployment rate begins to decline, then wages will begin to rise more quickly, that labor will have more of a negotiating stance, more power in their negotiations, and we'll see wages rise.

  • 10:53:44

    ZANDIAnd this will -- when we get to 2013, '14, '15, that the economy will be operating pretty close to where everyone will be pretty comfortable with. And in this dynamic I just described is something that is very typical. It happens in every business cycle in the wake of every recession. This one's a little atypical because of the severity of what we've been through, but the same dynamic is in place. And I think we'll see wage growth begin to improve as unemployment comes down.

  • 10:54:12

    REHMMark Zandi, and you're listening to "The Diane Rehm Show." David Wessel, in yesterday's New York Times magazine, David Leonhardt wrote that the world economy, and more specifically the U.S. economy, will have to be more and more dependent on Chinese consumers. Are the Chinese going to begin buying as well as producing?

  • 10:54:46

    WESSELWell, they say they want to do that, and it's certainly in all of our interest -- the world and the Chinese. I think the argument, really, is over speed. We'd like them to do it by Thursday, and they were thinking more about 20 or 30 years. But I think it does illustrate something that is different about our time than it was 25 years ago, is just how much we are not looking at a world that is dominated by the American economy, and that it means that, you know, our companies are going to compete with Chinese companies to sell to the Vietnamese and the Brazilians. And we can't afford to lose that race by having stuff that's too expensive or not good enough. We have to do something better than the Chinese.

  • 10:55:26

    WESSELAnd our workers are -- more than ever -- in a position of competing with people in other countries because so much more of what happens in the world economy can be shipped or sent over fiber optics and stuff. So that's one reason why people are feeling a little more vulnerable. It's not just the factory workers whose jobs are at stake. It's an awful lot of people. I mean, you know, this show could be produced in India someday at half the cost. So we ought to be careful, Diane.

  • 10:55:53

    REHMAnd what about the consumer, is there going to be a new normal for that consumer, Scott Krugman?

  • 10:56:01

    KRUGMANThat's a very popular topic of the debate. We know that the consumption levels of 2006 were unsustainable. However, we also know that what we've been seeing over the last two years is probably not the normal. It's probably below the normal. So the truth is, somewhere in between, I think, is where you're going to see the consumer emerge. There will be more of an appetite for some conspicuous consumption. However, you know, the holiday season might be great. We might see that increase that we've been looking for.

  • 10:56:28

    KRUGMANThe question is what happens after that? And I think for the consumer to be in a position to be able to spend responsibly, but to be able to spend, we are going to have to see improvement in unemployment. And we are going to have to see improvement in housing. Consumers overall -- and it all comes back to this -- they need more confidence that we're out of the recession. I think too many of them don't believe it.

  • 10:56:50

    REHMScott Krugman, he's vice president of the National Retail Federation. Mark Zandi is chief economist of Moody's Analytics, author of "Financial Shock." David Wessel is economics editor for The Wall Street Journal and author of "In Fed We Trust." Thank you all so much for being here.

  • 10:57:15

    ZANDIThank you.

  • 10:57:16

    KRUGMANYou're welcome.

  • 10:57:17

    REHMAnd thanks for listening. I'm Diane Rehm.

  • 10:57:20

    ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Susan Nabors, Denise Couture and Monique Nazareth. The engineer is Erin Stamper. Dorie Anisman answers the phones. Visit for audio archives, transcripts, podcasts and CD sales.

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