Its reach was about as wide and tight as the recent cloud of volcanic ash on the economy, but its effects were more devastating. The recession that took over much of the world starting in the last quarter of 2007 put clamps on jobs, production of goods, but most importantly, the cash folks had in their wallets to purchase those goods. The ripple effect soon engulfed the entire globe, most notably in the United States, where consumer spending accounts for about 70% of economic activity.
Lackluster spending raised worries the economic recovery that started in the second half of 2009 could lose steam when government stimulus and the lift from inventories wanes. After all, the true measure of an economy is how quickly money changes hands, and the latest time period for which we have live data is February, when the U.S. Commerce Department reported 0.3% growth in purchases -- in line with economist estimates.
Analysts said the steady rise in spending over the last five months supported views the labour market was turning, with payrolls expected to grow in March.
"It may be the sort of leading indicator of job gains in the sense that things are happening out there that consumers have confidence to spend even though the top line employment numbers haven't been that supportive," said Kurt Karl head of economic research at Swiss Re in New York.
In Canada, the picture is even a good deal clearer and cheerier, given that that country’s economic downturn was less pronounced and less lengthy than America’s. While Canadian consumer spending is not monitored as closely as the States, more and more signs are appearing that growth is on the rise north of the border. Real gross domestic product advanced 0.6% in January, a fifth consecutive monthly increase.
But when the jobless rate starts to move appreciably downward from the 8.2% it registered in March, more Canadians will share in the general joy.
But an economic rally can truly be tracked by statistics surrounding how much folks shell out on every day purchases including indulgences to their collective sweet tooth (or, in this case, appetite for cappuccino or latte). Appropriately, Seattle-based Starbucks (Nasdaq:SBUX) found its bottom line "perking" up in the fiscal second quarter of 2010, with net income of $217.3 million, or 28 cents a share, compared to $25 million, or three cents a share, in the year-earlier quarter. Sales rose 9% to $2.5 billion. (All figures in U.S. dollars unless specified otherwise).
The good times have been a long time coming, however. Same-store sales, which rose 7% in Q2 2010, went south 8% in the same quarter the year before, and the last two years had been ones of almost constantly bad news for the retail coffee giant. In July 2008, Starbucks also cut almost 1,000 non-retail jobs to reenergize the brand and boost its profit.
Also that summer of dread, SBUX gutted its Australian operations, by closing three-quarters of its stores Down Under. But the cuts did not have the immediate desired effect. Seven thousand more pink slips had to be issued in the winter of 2009, with the closure of 300 more stores. Even CEO Howard Schultz volunteered for a pay cut.
But now, the company is able to put its head above water, with SBUX veering back toward its 52-week price of $26.00, which it achieved in March, after tanking last April at $11.20.
Food services company Unilever (NYSE:UL), with headquarters in Rotterdam and London, but with offices the world over, did what it could to put a brave face on during the recession, with its CEO Paul Polman telling reporters in the spring of 2009 the money that folks were keeping in their pockets for big-ticket items like cars and TVs benefited firms such as his.
"We don’t see personal care or food markets go down substantially," he said during a visit to UL’s facilities in India.
"We are in an industry that drives the economy. We put a little bit of powder in a box and a little bit of liquid in a bottle and we sell it to improve the lives of people a little bit more.”
Indeed, UL experienced underlying volume growth at 2.3% for fiscal 2009, which accelerated through the year, reaching 5% in the fourth quarter. But the general jitters did get to the company; one of Polman’s first moves when he took over as Unilever CEO early in 2009 was to scrap earnings guidance.
While initially it looked like a short-term measure because of economic uncertainty, he quickly embraced it as a longer-term strategy that will give the company financial flexibility to maintain marketing support as needed regardless of quarterly financial pressures.
Unilever's stock took a short-term hit as a result, as analysts and investors decried the lack of visibility. Even so, UL stock rallied to a 52-week high of $32.41 on the NYSE in January, after plumbing a depth of $18.25 last April.
Among the prized possessions of this multinational is the ice cream chain known as Ben and Jerry’s, which it picked up in 2000 for $270 million. Although founders Ben Cohen and Jerry Greenfield are still engaged with the company, they do not hold any board or management position and are not involved in day-to-day management of the company.
"We believe" declares company literature, "that using business as a tool for social and environmental change is just as important as sourcing the finest ingredients to make our ice cream. So, when we can, we source ingredients from producers and suppliers who share our values."
Ben and Jerry’s began selling ice cream wholesale out of Cohen’s van, one pint at a time. Another company that began small and is growing exponentially, and perhaps the quickest of all the Company’s covered in this article is San Antonio-based Tootie Pie Company, Inc. (OTCBB:TOOT), whose business model appears to mimic Ben and Jerry’s, in that it has moved its product (in this case, gourmet pies) via three selling channels: grocery and food service, corporate and gift giving; and in cafés.
TOOT’s current market coverage includes 15 distributors in 13 states. Through both regional and national distributors, its pies are now served in restaurants and high-end grocery stores. For example, in Texas alone, Tootie Pies are available for purchase at more than 40 HEB stores, the Lone Star state’s largest grocery chain.
The latest example of sweet teeth being satisfied in the American South is shown in Oklahoma, where TOOT announced in late April the completion of a very successful food show with the Ben E Keith Foodservice organization in Oklahoma City; landing 43 new restaurant customers across the Sooner state.
The company, only five years old, has built up a head of steam, increasing sales month after month. As of March 2010, the increase was 27% over the same month the year before. In the last quarter of 2009, TOOT reported a net profit of $29,771 on revenues of $910,837 in the last quarter of 2009, compared to a net loss of $30,618 on revenues of $909,741 in the same period of 2008.
And it’s still one of the best-kept secrets on the small-cap market. TOOT sells for only 25 cents a share, less than its 52-week peak of 40 cents recorded last May. Investors can stick in their thumbs and pull out a "plum" bargain, with this stock.
Merchants and investors on both sides of the border are crossing their fingers these upward trends for consumer spending (trends supported by economic wizards the world over) continue to hold, as more folks take their wallets and use the disposal income they have.
For example, a report by RBC Economics -- an arm of Canada’s largest bank -- indicates that consumer spending in that country is expected to continue to expand next year by 2.8%, matching 2010's pace with business investment set to rise by more than 7%. This should result in Canada's GDP expanding by an even greater 3.9% in 2011 from 3.1% this year. All this cheery news about the economy can hopefully lead North America, and the world, into a strong economic recovery and leave the most recent recession as a fading memory for consumers and companies alike.
