Third Quarter GDP Increases

Posted on Oct 30, 2009 by Ted Hurlbut

Yesterday, the Commerce Department reported that third quarter GDP rose 3.5%, the first increase after four straight quarters of decline, including a staggering 6.3% decline in the first quarter of this year. Reaction was quick to call this proof that the recession has ended, and that a rebound is well underway. More cautious reaction pointed out that many economists think that this was mostly a bounce-back quarter, and that the outlook for the next few quarters is decidedly more modest.

For independent retailers, this jump in GDP is better than another drop, but in reality it’s really neither here nor there. Certainly the economic reporting is not anywhere near as dire as it was six or nine months ago, but consumer sentiment remains muted. The various measures of consumer confidence have been mixed over the past few months, and I’ve questioned whether the link between consumer confidence and future spending hasn’t been weakened in this recession. Unemployment is not expected to crest until spring, at the earliest.

Most independent retailers have learned to take a wait and see approach. Cash remains a fundamental consideration, and it’s hard right now to justify investing cash in anticipation of a sales rebound. It’s far more prudent to wait for that rebound to actually materialize, and then chase inventory, if necessary.

Unfortunately, the fortunes of independent retailers will likely lag the rest of the economy. This is because most independent retailers trade in goods that are more discretionary than not, and discretionary spending is likely to bounce back later rather than sooner.

Thus, for independent retailers, the news is likely to get better before business does. Successful independent retailers will balance prudent aggressiveness with prudent caution.