The Low End Theory

Recessions are tough on everyone, but not equally so. Blue collar workers have it bad relative to white collar workers. Oddly enough, the pain on the lower half of the income spectrum is generally good news for discount retailers; Wal-Mart sales are famously counter-cyclical, and fast food restaurants have also done well through the slowdown. But when bad times get bad enough, even the low end hurts.

Megan Barnett writes:

Mike Duke, who became CEO of Wal-Mart earlier this year, gave Matt Lauer a dim prognosis on the state of the economy on the Today Show this morning. Based on the retail giant's observations of its customers' spending habits, few people are experiencing the "glimmer of hope" that some economists believe is emerging.

Duke said consumers are still feeling a lot of stress and he doesn't expect the economy to rebound soon. "It's not a 'V' recession, where we're just going to bounce out and come back," he said.

News from Burger King today only compounded the dismal outlook. While fast food restaurants had been benefiting from the economic slowdown, Burger King surprised analysts by posting lower than expected revenues for the first quarter.

What this says to me is that just as the pain is uneven, "glimmer[s] of hope" will be seen by some people and regions long before things brighten for others. The latest from the Federal Reserve's Beige Book certainly reflects geographical divergence. The Fed banks in San Francisco and New York, which cover richer portions of the country, reported slower rates of economic decline than the rest of the nation (although curiously, so did the Chicago Fed, whose region includes Detroit). The Atlanta Fed, covering the deep south, showed no relief for the region.

And while the producer and consumer price releases this week indicate that near-term inflation should be the last thing worrying policymakers, it's worth remembering that price shifts affect different income groups in different ways. Consider this -- core consumer prices rose slightly in March thanks primarily to an 11% increase in the cost of tobacco products (there's that Obama tax increase), and smoking is much more prevalent in the population among the poor.

Which isn't to argue against cigarette taxes; they're a valuable public health tool. It's just to note that pretty much any way you slice recent economic data, things end up being harder for those with lower incomes. Something to keep in mind tonight as you watch tea bag coverage rolling in.