By Bob Phibbs, President/CEO, The Retail Doctor & Associates
The media is having a field day with news of the U.S. economy and should, I think, be called out as terrorizing the citizens of this country. They took the first two-thirds of a basic advertising formula from Madison Avenue: “Find a consumer’s weakness and then scratch it until it hurts.” But they left off the most important part, “…and we have the solution.” It’s as if you woke up to hear, “Starbucks coffee is going to be reduced to thin dishwater and there’s nothing you can do about it.”
Last March, when the news media realized viewers didn’t respond to the hopelessness about the war in Iraq, they found another perfect scare: home mortgages. The bedrock of the American Dream was in jeopardy from sub-prime loans. All the talking heads lined up to crow that they saw it coming. They predicted that the American consumer would snap their wallets shut, the stock market would plunge and one even said on MSNBC, “If you bought a home in the past two years, walk away from it. You’ll never get your money.”
As the summer progressed, new headlines emerged. More people were using their credit cards to pay their home mortgages. ARMS were reset to double their value. Home sales plummeted; prices crashed 20 to 30 percent — just like the Depression. You’d think no one was capable of paying a bill, selling a home or getting credit. We became terrorized!
Americans, unable to escape this news due to the proliferation of flat screen TVs in everything from the doctor’s offices to coffee houses, watched the making of the economic downturn and were mesmerized. They understandably put a question mark behind just about anything in their lives. Good time to marry? Good time to buy? To change jobs? To move? And the wallets indeed shut.
The most optimistic of countries is now shaking in its collective boots fearing the future. The middle class is acting like they have no money.
In January, with the December numbers out, the sharks were circling and guest starring on the local media. All were hoping to be first to paint the bright red “R” of recession. Even though they can’t get reliable data on that until May – a full four months from now, there’s no doubt the media will continue to paint the worst picture until at least then.
When the economy does turn, which it invariably will, the media will be the last to know. But there are hopeful signs already.
Container traffic in Los Angeles/Long Beach ports broke a four-month decline in imports in December, setting a record. Retail sales did, in fact, increase in December by three percent. As the Fed lowers the discount rate, all adjustable home rates will benefit. The tax cuts recently announced will help as well.
I’m not denying we’re dealing with some very challenging times, but it would have been preventable had we just realized the media weren’t on our side.
Discussion Questions: Do you agree with the premise that the media have contributed to the economy’s downturn by “terrorizing” consumers? If so, what do you think it will take to get beyond the negativity? How can marketers and retailers help turn the tide?
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The joke here is the term “looming recession”…we use it in every discussion, just to make sure no one forgets about it (also a joke).
Without question, it is a time to be cautious and perhaps hold on to a little more than in prior years, but the media, as usual, is creating a classic self-fulfilling prophecy in terms of recession. That was the exactly the case for Holiday, as consumers were there, but just spent less.
Reality is that it’s long overdue anyway, and now, the real question is for our economy, what’s the next bubble?
We think it starts with “green.”
Remember the phrase “that’s money in the bank”?
According to the New York Times on Jan. 15, Citigroup reported a $9.83 billion loss and was going to take an $18.1 billion write-down “from a sharp drop in the value of mortgage-related securities and heavy trading losses.”
According to the Associated Press on Jan. 16, JP Morgan Chase wrote off $1.3 billion in mortgage losses and “boosted its provisions for loan losses by $2.54 billion.”
According to MarketWatch on Jan. 22, Bank of America reported a $5.44 billion loss “driven by writedowns of collateralized debt obligations (CDOs) and weaker trading results.”
Now, in the name of anti-terrorism, shall we argue that the media not report those corporate results from some of America’s most prominent banking institutions? Taken one step further, when the banks are reporting such astounding actual losses–and setting aside billions more for expected future losses–is this a reason for Main or Wall Street to ignore the possibility of a recession? Or, are the banks (widely known as ultra-liberal and cavalier about their reputations) simply sensationalizing their own mistakes because they want to give the media something juicy to report?
Let’s stay focused: Americans need to pay down their debts.
DEFINITELY. We subscribe to the WSJ on line, and were receiving almost hourly bulletins letting us know the sky was falling for a while.
I have a theory on this–it could be right, it could be wrong. But I think a lot of the brokerage houses, who actually are arms (no pun intended) of banking institutions are feeling particular pain because of the problem with sub-prime mortgages. Usually, they make money whether stocks rise or fall. This time, they are getting killed. Hence news media that are intimate with those institutions are particularly panicky. Those bulletins are picked up by other news media, and we end up with hysteria.
Having said that, there’s a fundamental weakness in our economy, mostly caused by our lack of a manufacturing base…but somehow, I don’t think the right answer is giving $300-$600 to every taxpayer in the US.
The media is incorrigible. It will always be circling the wagons. In their effort to report the terror, they terrorize. Once they zone in on the story, there appears to be no way to get them to back off. They continue to feed on the story and on themselves until something else comes along.
But can we do anything about it? Certainly not at the policy level. Legislating best practices soon will create more terror as governments would abuse the necessary censorship. Free speech is a good thing even if it controlled by huge multi-nationals.
Better to vote with our remotes. Turn it off. Turn it to a different station to get a balanced point of view.
As to the current media frenzy, now here this: we are not in a recession until the economy contracts for two quarters. And by the way, the retail industry actually expanded during Christmas, Microsoft’s earnings were up 80%. There is a lot of momentum yet, despite the unbelievable harm the bankers have done to us by trading bad loans like it was bubble gum.
Last week, Merrill Lynch and Goldman Sachs chief economists used the “R” word (recession) with their clients, so they were among the first on Wall Street–before the stock market’s dark Monday this week–to opine on the recession.
Consumers have already felt R-fever to a great extent, whether regarding job insecurity, health insecurity, or home insecurity. Recession, though, can be felt on a regional basis–while some aggregate national statistics might look fairly positive, there are regions in the U.S. that have been in recession (that is, economic downturn for more than 2 quarters) for some time–think: Detroit, urban Indiana, other parts of the Midwest and New England. So this impacts retail on a regional basis. Most consumers aren’t really consuming that much mass media right now–they cobble together what they want to consume, news-wise, online and in bits and pieces on the radio. Newspaper readership is down, and TV news consumption is also on the decline. Don’t blame the media; if anything, they’re late to this party.
The concern over ‘media’ being the enemy when news is bad, fails to acknowledge the champion role the ‘media’ played in making the market.
Granted the very foundation of every market economy is optimism, but when participants actually start believing the stories spun to maintain the optimism, ‘pity the fool’. Major corrections and the resultant introspection are signs of a very healthy economy.
Primarily inflation. That is what I hear most out of my co workers, friends and family. This stimulus package may make retailers smile, but it is not going to solve the inflation problem. Until gasoline settles down to a price the consumer is comfortable with, we are going to have this unease. And it does drive up our cost of goods.
Even though I think the cronies in the media that cover Washington have an agenda, I think this “terrorizing” is more about that they have ran out of stuff to fill the 24 hour news cycle so they move to sensationalism and playing on people’s fears. Britney or Paris will have to do some more outrageous things to distract them, I guess.
How you see the economy depends on where you are. If you are at the top, things are great. Maybe 15%. But the further you go down, the tighter things are. Look at the store closings. Look at all the people just looking. Look at the nearly empty stores.
The news media have blown the economic situation out of proportion. Is this a topic that they can safely exploit without threat of retaliation from the Bush administration? Perhaps.
The overwhelming majority of Americans are not facing rising mortgage rates from ARM loans and have more than enough credit to buy what they need.
Retailers need to continue to offer consumers value and customer service. In a time of economic uncertainty, it’s important to be an anchor for consumers.
I don’t think the media is entirely to blame, partly because it’s a vicious cycle; media cries wolf, people pull back on spending and GDP suffers. However, there is a genuine spread of the economic impact of the sub-prime mortgage situation to other sectors. Not so much because people bought houses at too high a price in the past two years, more probably because of other factors, like Home Equity Withdrawal.
People used the rapid appreciation in home prices to finance consumption related spending. The decline in prices left them with higher loans than the value of the property (you will be surprised to see the high share of mortgage consumers that have a combined loan-to-value or ‘CLTV’ ratio well exceeding 100%). One study reports Freddie Mac House Price Index elasticity to Retail Sales of around 0.3, although this could vary by individual retail sectors. This indicates that if the HPI dips, at least some retail sectors will be hurt. Mortgages are only part of the picture though. The December private sector employment report was also quite weak–if unemployment increases, spending will inevitably suffer. Remember–pretty much consistently there has been an economic contraction at the turn of the decade–2008 is a bit early but the mortgage situation could have accelerated that cycle.
I think it’s gross oversimplification to blame the current economic slowdown on the media. If anything, they have a tendency to be followers of news and social trends, not leaders. If they had been paying closer attention until the second half of 2007, we would have seen more coverage of the subprime mortgage issue, the genuine bubble in housing prices in some regions, the pileup of consumer debt, and other leading indicators that led to where we are today. Of course, you can also blame the federal government (including the Fed) and the financial industry for being equally asleep at the switch.
The fact that the print and electronic media have now made front-page news out of the economic slowdown might be a bullish indicator that things will improve during the second half of 2008. In any event, let’s remember not to “kill the messenger.”
I whole-heartedly agree. I don’t know that I would use the word “terrorize” since that’s a loaded term nowadays, but definitely I think there has been more talk about a recession than an actual recession–and if the talk continues, it will become a self-fulfilling prophecy. I don’t get paid to be an economist so I haven’t done any research into numbers that would back it up, so if someone has evidence one way or another, I would love to hear it–here’s my impression.
The last 10 years, with the understandable exception of 2001-2002 have seen growth in wages and falling prices. So consumers actually have some room to take rising commodity prices–as long as they don’t get too high. So far, I think we’ve stayed within that bound.
There are a lot of macro-economic indicators that point to troubled times ahead, like mortgages and housing numbers, but I don’t think any of the pundits who are looking at these numbers have them in the right context, because people still have their jobs and they still have money to spend. The fear-mongering and over-the-top negative spin by the media definitely is not helping.
Isn’t it against the law to yell “fire!” in a crowded theater? Some news outlets are coming awfully close to that line….
I actually would hold the media more accountable for not sounding the alarms earlier on the factors that are contributing to the current economic crisis.
While retailers did eke out a modest increase this holiday season, many major retailers, including Target, saw a downturn for the first time in years. I think you would be hard pressed to find anyone in the retail sector who doesn’t feel like this is going to be a challenging year for both the economy and the industry.
Seems a little too easy to blame the media for reporting on the recession, as it is a reality. It obviously won’t serve the industry’s best interests to have it as the lead story on the news every night, but merchants are going to have to find creative strategies to drive business in the face of this difficult climate.
I agree that the media contributes to a degree to the public perception about certain economic trends, however, I think the influence is limited to certain realities that drive the economy. Most people view the economy in the first person through their own individual circumstances.
I don’t agree or subscribe to the theory that “the media” switched gears from the war in Iraq to the economy. There is no such thing as “the” media setting an agenda for topics. Honestly, that’s a paranoid perception that has been discussed mostly by right wing members of “the” media. And I find that ironic.
I agree that the media has overblown the economic situation. In fact, the economy is actually very good. The Dow is up about 2000 points or 20% from where was about two years ago. The prime rate is dropping which really cuts most businesses’ interest expenses. Unemployment is still in single digits. Home prices and mortgages are now dirt cheap so anyone can afford to go buy a nice home. Food is still cheap. Gas really isn’t so bad.
I just booked a cross country air fare for $190 round trip. What’s the problem? Where else could someone live earning 10% a year on their investments, low cost of living and housing, relatively safe and clean environment, good food, and cheap transportation? Then the media comes along and tells us we are doing it all wrong. Turn off the TV.
From the December issue of Growth Strategies [rogerselbert.com]:
As repeatedly highlighted in these pages over the past 26 years, there is a mismatch between Americans’ assessment of their own economic, financial and social situations (good, with good prospects), and that of the country or economy in general (bad, and likely to get worse). And as we have been pointing out during all of this time, both cannot be true for a majority of people. But has the mismatch between perception and reality ever been greater than today?
[According to the latest Harris Poll, 94% of Americans are satisfied with their lives (56% very satisfied), and 62% expect their personal situation to improve in the next 5 years. Yet 68% believe the nation is “on the wrong track.”]
One wonders about the accuracy of polls that show some significant percentage of Americans believing that the economy is in recession: economic growth in the third quarter was 4.9% (combined second and third quarters were up 8.7% on an annualized basis); or that the next generation will experience a declining standard of living (two-thirds of Americans have incomes higher than their own parents, according to the Economic Mobility Project). How do such misperceptions persist in the face of evidence to the contrary? Our long-time readers know at least three explanations:
The good news is that the bad news is wrong; the bad news is that the good news often gets overlooked.
The case for no recession in 2008:
Of course recessions have not been outlawed; we seem to get a short, shallow one every ten years to correct the unavoidable misallocations of economic and financial resources. But due to the amazing resiliency and productivity of the modern American economy; its abundance of entrepreneurs, innovators, inventors, risk-takers and creators; its public and private equity markets; its rule of law–in other words, capitalism–we will always return to the path of growth. The threats of disruption to this process of “creative destruction” are high taxes, overregulation, instability and protectionism.
I spent Tuesday and Wednesday in New York with presidents and chief credit officers of several major banks, hedge funds and other large institutions that lend to America’s retailers and can assure your that the media played no role whatever in exaggerating this crisis.
The banking world is in full retreat. Several institutions announced significant layoffs this week. One senior lender even said the Fed’s 0.75% bail out on Tuesday added to lingering denial that we are in recession. “We need to take our medicine,” he said.
I agree with Richard Seesel and Andrew Gaffney’s contentions that, if anything, the media understated the depth of the crisis throughout 2007. Their motives are clear since recessions hurt ad revenue especially in retail and real estate.
The short term impact started to take root on Wednesday morning. Despite the falling prime rate, major lenders began to charge higher fees and cut cash availability to small & medium sized retailers and suppliers who borrow against their inventory value (Asset-back loans or ABL). This will cause a chain reaction in all forms of retailer spending. Assortments will be reduced. Retailers will pressure vendors by demanding RTVs before accepting new shipments for spring and summer (merchandise that has already been made and shipped!). Overseas suppliers will withdraw terms and demand letters of credit. Ad budgets will be cut. Store renovations and new store openings will be delayed or canceled.
This is not a test. This is not a scare. There is no cash.
Clear trends like this allow smart operators to take advantage of the situation while others panic. Get used to it. Get smart.
It’s not that complicated and it’s not that simple. The “News” media in America is entertainment. It’s a business charged with making money. Money equates to ratings. Rating equate to sensationalism. Therefore, the news media looks for ways to sensationalize any and all news.
The economy probably isn’t nearly as horrible as they make it out to be but the push to increase ratings encourages media to point out the most dire circumstances. This tends to grab the attention of the consumer and after a while even the thickest of the lot are convinced there is a “Problem!”
I had the occasion to be in Atlanta last weekend and was treated to a snowfall (fairly rare). Every TV channel in Atlanta was predicting the beginning of a new ice age. Streets were to become impassable–black ice everywhere. We were convinced that if we didn’t buy a months worth of rations we might starve before we got a chance to safely venture out again. Well, you know what happened. It snowed about 2 inches, it got cold, the sun came out and it was all gone by noon on Sunday. A tempest in a teapot! The media has become master of manipulating emotions by embellishing fact.
The media terrorizes us about everything every day–get used to it, it ain’t gonna change!
The media needs to report what is happening. However, harping on one topic without presenting a broader picture helps no one. While the mortgage crisis is a problem that people need to know about and the value of the dollar has declined, which people also need to know, how many stories have you seen about the increased exports from the US because of the low value of the dollar?
Reporting the whole story in a balanced fashion may alleviate some of the “herd” mentality and temper the feeling of no confidence.
I suppose if you want to get media coverage that only portrays the positives going on in the economy you could always move to China, Syria, Zimbabwe, etc.
There is no terror in a bang or a possible recession, only in the anticipation of it. Perhaps we have come to expect a constant economic panacea and tend to over-react to slow downs that are reported in the media or by Wall Street, thereby anticipating that the sky is falling.
Recognize that today, much news and lots of columnists are subjective. That’s how they earn their living–it’s capitalism at work. Nonetheless, keep your eyes and mind open…but keep moving forward positively.
Four key words to be ever mindful of, here: “It’s an election year.” That fact frames the context for nearly every “story” and every “action” about the economy we will see presented in the news this year, regardless of one’s political proclivity.
Add to that the fact that many people (from Wall Street CEOs to first time home buyers to middle class home equity hounds) are now recognizing that they made some terrific financial mistakes over the past few years. It is somehow psychologically easier for them to pin blame on “the economy” and be swept up as part of a macroeconomic recession, than to accept responsibility for their individual actions which are currently contributing to the downturn.
I live in Florida, and while the housing market has tanked, it’s for the best–seriously–as houses that should have been on the market for $200K were being offered at $700K! The reality check in the housing market and mortgage shenanigans has spilled over into the economy overall, but it’s like a hangover and after some time (and water & [pain killer]) will bounce back.
We’ve got more productivity in this country that’s locked up right now for the “war” that could be used for so many other positive things, and when that comes to an end (one year or five, who knows?) this will help swing us back on track.
Media, regardless whether or not it’s from “the trusted sources” is here to sell [products], so of course they focus on what will draw readers in.
Hmmm, a shrill, almost hysterical article about shrill, hysterical articles: capital job of satire, just capital!
Oh, it was meant to be serious? Well then: yes, there does seem to a crisis mentality about what will likely turn out to be the economic equivalent of a mild cold; and yes, to some extent the media, if not exaggerating it, then at least panders to it. But just because people say foolish things (MSNBC?!?!) doesn’t mean you should listen to them…and if people wouldn’t listen, fewer would say the things in the first place.
You have got to be kidding me with this. Everyone I know is dealing with increases in property taxes, electric rates, telephone rates, gas prices, food prices, transit fares, consumer interest rates, etc, and stagnating income. Any average, normal working person will tell you this. That is, the ones who still have jobs.
Look at the types of jobs being created in growing states like Texas and Nevada. Can you support a family of four with them? Now look at states like Michigan and Ohio. What jobs?
What’s “terrorizing” this nation is the outsourcing of work overseas, the erosion of the middle class and the concentration of wealth in the hands of über-rich. We are becoming Brazil.
As a member of the hated media, I can tell you that we always look for themes to drive stories home with readers. Conflict, fear, slumps…these are just a few of the time-honored negatives that we exploit. Sometimes.
We also have a bias toward reporting negatives because we fear being seen as in bed with business and politicians. Better to be criticized for being too harsh than for being too soft.
But don’t forget, readers and viewers bring their biases to the table too. I find that folks tend to believe that the best journalism tells them what they think they already know to be true. It’s one reason that blogs have gained readers.
One person’s “fair and balanced” reporting comes off to another person as a sop to the Bush Administration. Two readers can read a piece about the housing market and one will think it’s hard hitting and the other will think it’s soft. One story I wrote about a grocery chain prompted the CEO to curse me out on the phone because I pointed out that some shoppers thought the chain is a bit pricey and destroyed his marketing efforts. Then a reader told me, “The story made me want to check out the store.”
Of the two calls, the second distressed me more because it made me wonder if, despite my best efforts at fairness, I hadn’t let my admiration of the company taint the story.
So even when it comes to the economy, a subject that is rife with statistics and objective data, it must be interpreted. As a journalist, I’m more ashamed of our failure to point out the looming housing mess three or four years ago.
I find this whole thing about “the media” pretty silly. Are we talking about the supposedly right wing usual suspects, or the left wing usual suspects? There are more sources of news and discussion now than ever before. While many of the mainstream outlets are owned by big corporations, many websites, trade journals, and blogs are owned by small private companies, if they are even run as companies.
Whenever there is significant bad news like a downturn in the economy people seem to run to find out what conspiracy it was that caused the event or who reported the event in a (supposedly) biased way.
Is it just possible that groups like “the media”, “the politicians”, “the doctors”, “the lawyers”, are really just made up of individuals who for the most part are doing the best job they can? There are enough media outlets now to find one that actually reports “the news” in a reputable way.
If you don’t like the reporting, change channels or papers or websites or blogs or whatever.
No modern economy in any country can function without bank lending. Typically well-funded banks have a capital ratio around 8%. This means that for every dollar of bank equity, they can support around $12.50 in assets. So if a bank writes down $5 billion in bad loans, that $5 billion is part of the bank’s equity, so the assets have to shrink 12.5 times that number, or $62.5 billion. That multiplier is a killer, because it means $62.5 billion fewer loans can be made.
Citibank, one of the largest banks in the world, only has $120 billion of equity supporting $1.8 trillion in liabilities. Barclays Bank estimated today that if the bond insurers fail, banks will need $143 billion more capital. That’s because banks are supposed to write off low-rated uninsured investments. So $143 billion of capital, if not available, would mean shrinking bank assets by about $1.8 trillion. That is about the size of Citibank. The American economy is $13 trillion. So a $1.8 trillion reduction would take 14% out of the economy.
Last week it became apparent that the bond insurance companies might not be able to pay their obligations in the next few years, due to the subprime fiasco and other inaccurately-rated loans. That is why stock markets all over the world declined sharply on Martin Luther King Day and why the Federal Reserve took major action at 8 AM the next morning.
The major bond insurance firms are regulated by the NY State Insurance Department. In other lines of insurance, such life and health, when an insurance company fails, the remaining companies usually have to absorb the losses, so that policyholders can be paid appropriately, up to certain limits. This form of protection is NOT the rule for bond insurers. A major bond insurer in Maryland has already failed, and is being run under state supervision. The NY Insurance Department is holding meetings with banks and financiers (Wilbur Ross, Warren Buffett) to try to keep the policyholders from absorbing the losses.
What made The Great Depression so awful? Nationwide bank failures. People lost their life savings. Loans could be not be made by destitute banks or failed banks. So a quarter of the country was unemployed or underemployed for well over a decade.
The media isn’t exaggerating the economic problems. But the explanations could be better.
While the “media” is all too often the scapegoat for all manner of negative cultural, political, and economic persuasions, I think in this case, it’s a valid criticism. The fact that it’s an election year surely dulls the colors even further, every 2 or 4 years, we all are subject to this media perspective, regardless if it’s true or not.
My major question is, exactly what group, economic or political interest gains any benefit from such “terrorism”? Surely it does not a thing for the mid – small businesses – at least nothing positive. This “shot in the arm” economic boost that’s been proposed must surely benefit the large corporate interests with new tax reductions and write-offs that haven’t really been defined well as yet; do they offset the impacts of this financial recession? Somehow, I’m not sure they will. The layoffs shall continue, it appears.
Perhaps this is just more of the perverse American penchant to seek out the demons in the closet? The “sky is falling” mentality? Surely in a group of business associates, this is something quite easy to agree on, regardless of the type of business.
Personally, I’m not convinced that this is anything more than the “perception is reality” mindset that seems to permeate this culture. It is distracting, and an often deliberate misdirection of the so called “public sentiment.”
When was the last time that the insanity of the war in Iraq got the column inches, the pundits’ airplay, the political discussions? Not much since the economy suddenly became the topic du-jour.
So, who wins? Darned if I know, but it seems that the military defense complex is surely breathing easier, now that for the moment, they’re a step or two out of the public limelight.
You don’t think that the media plays a big part in this? Let’s think back to when Johnny Carson was on late night. He told a joke about having a toilet paper shortage and guess what happened. You got it, we went to the grocery store and there was no toilet paper. The power of suggestion from the television made it a reality.
I know there are some other things involved other than the media, but the media has made it worse than it should have been. Let’s look at the war in Iraq. The only things you see reported are only the bad. How much reporting was done on the people walking very long distances so they could vote? How much reporting has been done on the positives that have come by us sticking our noses into the Middle East?
Don’t get me wrong, I don’t wear blinders that the war is good but let’s get some reporting that is not tainted either one way or the other. I would love to see reporting on just the facts and then let us make our own minds up. And that goes for every thing, not just the war or the economy. We need more facts and less of someone’s opinion when the news is reported.