The New Normal

Varney and CoFOXBusiness

We have a new term to describe the economy on Varney and Co: The Dollar Tree Economy. The reason is simple: we have less money in our wallets to spend. So we're either spending less, or what we do spend is at bargain places like Dollar Tree, which just this week reported that it expects very strong sales for the second half of the year. The company's stock soared this week as a result. Their good fortune, to some extent, is due to our misery. Here's why:

  • Thanks to the expiration of the payroll tax holiday, our paychecks are 2% lower. (As of Jan 1st.) Goldman Sachs estimated the cost of that one move to the economy would be $250B.
  • A recent leveling off aside, gas prices have spiked nearly $0.50 a gallon on average across the country this calendar year.
  • For each penny gas goes up, that's $1.2B in spending power out of our pockets.
  • 4Q gross domestic product was just revised UP to an anemic 0.1% "jump" in growth.

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Those are bad signs for this economy. We all have less money to spend. Retailers for the most part - Wal-Mart included - are forecasting lower sales this year as a result. This is the Obama Economy. But "Dollar Tree Economy" is just less pejorative.

Here are two personal examples:

First, my wife and I were going to take a weekend trip to upstate New York earlier this month to see our alma mater, Syracuse University, play their final basketball game against their arch-rival Georgetown. We were going to stay with a friend who lives there. But the cost of gas, meals, and our tickets was too much after the hit we took from the payroll tax increase. We messaged our friend in mid-January and bailed, knowing he would have no problem getting rid of the tickets. (More than 35,000 people attended the game.)

Second, a trip we are taking is to Europe this summer. It's something we've been planning for a while to celebrate our 10th anniversary. We've saved some money for it and are using our anticipated tax return to pay the rest. (I know. Using expected income to pay future bills is no way to do things. But we made an exception for our anniversary.) I recently received a Groupon offer for half off Rosetta Stone lessons. I've always wanted to learn Italian and thought it would be great for my wife and me both to do so together before we go to Italy. We nixed it because even at almost half price - $250.00 - we just don't have that money.

I know, cry me a river because I can't learn Italian or go to a basketball game, right? But we are one middle-class family making a decent income. Those are two examples of purchases we couldn't afford in just two months. I am sure there is more to come. I am sure there are more similar families out there making similar decisions. Worse, I am sure there are families who are a lot worse off and making even harder decisions. Not spending. Not contributing to the economy.

It used to be as Wal-Mart goes, so goes the economy. Now we have a new normal. The Dollar Tree Economy.