December 23, 2003

The Walmart Index

More on the Walmart Index:

When Paycheck Is Low, Discount Retailers Have Pull: Living from paycheck to paycheck is the norm in the United States, economists say, and Wal-Mart's cash registers offer some proof of that. For more than a year, the retailer says, it has detected spikes in sales twice a month, around the 1st and the 15th, which is about the time that many people are paid. Visits to Wal-Marts around the country last week, at the height of the holiday shopping season, found many shoppers feeling squeezed - the Murphys on Long Island, the Dukes family in Georgia, the Lawrences and the Olsons near Seattle, and others as well.

''For many Americans, especially those with children who are living paycheck to paycheck, Christmas is seen as a time of financial crisis," said Stephen Brobeck, executive director of the Consumer Federation of America, an advocacy and education organization in Washington. "The group has grown as the result of rising unemployment and increasing consumer debt."

Though there are some signs that the economy is healing - in the form of bigger Wall Street bonuses, for example, and increasing corporate profits - income has remained mostly flat for many workers, leading to a discrepancy between gift-giving ambitions and what people can actually afford to give. "Even though you can point to improving economic indicators, one conspicuous omission from that list is wage growth," said Jared Bernstein, senior economist for the Economic Policy Institute, a research group in Washington. "And that's where most working families meet the economy."

Mrs. Murphy said her husband used to work in Manhattan, where the pay is better. His job was across from the World Trade Center. On Sept. 11, 2001, Mrs. Murphy said, he saw the first plane hit, walked out of his building and never went back. Mrs. Murphy dresses in hand-me-downs and uses her birthday money from relatives to buy Christmas gifts. The Murphys' lone credit card always has an outstanding balance. Life has been that way since they married, five years ago, she said, and there are no signs that it will change anytime soon...

What I want to know: Was Walmart not looking for bimonthly spikes until a year and a half ago, or were the spikes in purchases not there until a year and a half ago? And can't somebody make a profit giving the Murphys credit at an interest rate of less than 14% a year?

Posted by DeLong at December 23, 2003 09:12 PM | TrackBack

Comments

I posted on this article at Economists for Dean.

I thought this article was a poster-child for why tax cuts for the wealthy provide much less stimulus than for those who are what economist would call "liquidity constrained".

Posted by: lerxst on December 23, 2003 09:39 PM

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I don't think that noticable spikes around payday reflect much more than people buying things when they think they have more money to spend. That is different from when they are living paycheck to paycheck. People who are _not_ living paycheck to paycheck might buy big items like computers after paydays. What about the holidays? If you had lots of gifts to buy, this could count as a big item best put off til payday. This relates to DeLong's question... I just wonder what the trend is actually showing.

Posted by: heeter on December 23, 2003 09:50 PM

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"...income has remained mostly flat for many workers, leading to a discrepancy between gift-giving ambitions and what people can actually afford to give."

Boy, a "discrepancy between gift-giving ambitions and what people can actually afford to give"!

We've never had *that* before! Sounds like important "news" to me.

Posted by: Mark Bahner on December 23, 2003 10:23 PM

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Having written a few programs for a semi-retail organization, I wonder if Wal-Mart has recently enhanced its software so that it now shows those spikes, whereas it didn't do that before to such a marked degree. That way it would fall into the "we're counting better, that's all" category.

Posted by: Linkmeister on December 23, 2003 10:49 PM

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Mark, I agree.

Of the three items mentioned at the end of the article (DVD,Xbox,Bicycles), 2 were only invented recently and thus unavailable to people of any income. As a child I was sadly deprived of 3-D video games (thank God 2D ones were invented just in time!) DVD players, and CD players. VCRs were unfortunately a luxury item until I was older, so I was unable to be raised by 24/7 reruns of Barney the Dinosaur. And if I remember right, bicycles were rather major purchases back then, even for the middle class.

Really, the guy's kids would probably be better off without an XBox (and in my opinion, without Barney). They just don't know it. For $25 at Circuit City you can buy a joystick with an Atari 2600 and 10 games built in. If they already have a PC, they can for free download an emulator and every Atari game ever made for every Atari console and computer (don't worry, you don't need to afford broadband to download the 8K games).

For how many millennia did kids have to entertain themselves by running around outside? And how many around the world still do?

This article might as well be about the incredible wealth of these people. I'm not saying I'd like to be in their situation, just that it is insulting to real poverty to pass off not being able to afford cutting edge electronics as living from paycheck to paycheck.

Posted by: snsterling on December 23, 2003 11:38 PM

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Low-end consumer electronics aren't the issue for somebody raising a family; that stuff is a minor part of the budget, and something you buy if there's money left over after paying the big nonoptional expenses like groceries, rent/mortgage, car payment, and if you're lucky, insurance. (43 million americans aren't that lucky.)

Before you sneer at financially-strapped parents who buy a DVD player, bear in mind that lots of neighborhoods are not such that you can safely turn youngsters loose to play outside unsupervised. If the kids need to be inside, a DVD player can spell the difference between screaming stir-craziness and relative peace. And the DVD player only costs a tenth of a car payment, or a twentieth of a single month's health insurance for a family.

Don't be so quick to dump on somebody whose shoes you don't have to walk in.

Posted by: jimBOB on December 24, 2003 12:04 AM

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Having been through periods of living paycheck-to-paycheck and periods of doing better, I'll offer a data point that yes, I am a lot more likely to buy things right after payday when living p-to-p. For one reason, you tend to hang onto your last bit of money before payday "just in case".

Posted by: Mike Jones on December 24, 2003 12:42 AM

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jimBOB,

You misunderstood the point I was trying to make (and I think also that Mark Bahner made). This article -should- be about the people with the problems you mention, but it does not appear to be.

The Walmart mentioned in the first paragraph is the same Walmart I use. It's in the Green Acres shopping center and was just recently opened in place of a K-Mart. It is perfectly safe for her kids to play outside in Long Beach. This trendy beach community is not generally where one lives if they are poor. Her cart was loaded with stuff which will be paid for with the huband's managerial year end bonus.

And I just don't find it unusual that someone with five kids has to put in overtime and still finds the X-mas budget wanting. Perhaps the article should have used an unemployed person with five children for comparison. Another example in the article is of a one income family where the mom decided to stay home with her kids. A lot of people can't afford to do that (or afford child care). That is a choice.

"Recently, his son wanted a PlayStation 2 console, but that was out of Mr. Adkins's reach. So he bought the older version, which disappointed his son, although he eventually got over it. This year, Xbox consoles, new bicycles and a DVD player are on his children's wish lists. Mr. Adkins will do what he can, but the DVD player and the bicycles will not be under the tree."

This paragraph seems to suggest that this family will have both a playstation and now an Xbox. It's not about keeping the kids occupied. A TV should do that. Xbox is cutting edge electronics. The families here most likely have PC's at home which are perfectly capable of all sorts of entertainment. In fact, the budgets probably include AOL at $24 a month. The kids just want what their friends have. I would welcome a real article on poverty and Christmas, but I probably won't see one because Xmas for people that are truly struggling isn't about cart loads of merchandise.

Posted by: snsterling on December 24, 2003 01:20 AM

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Game consoles are consumer electronics in the $100-$500 price range, a range that is (or has been) occupied by such products as radios, record players, television sets, CD players and mobile phones. There is no point carping about the superfluousness of game consoles: to what degree an Xbox is a novel luxury is determined largely by your personal value system. Insofar as anecdotes such as the one under discussion have any wider relevance, it is that it is illustrative about the current purchasing ability of workers with respect to non-essential items that cost roughly 10% - 50% of the average monthly wage.

To say that consoles are a luxury and people "ought" to be satisfied with the stuff that was available to you in your youth smacks of old-fogeyism: the same complaint can be made with respect to everything from video recorders to indoor plumbing. ("Don't stare at the tube all day! In my time we read a book!" and "If using the outhouse was good enough for your grandma it's good enough for you, sonny!"). The market measures value by demand, and that's difficult enough as it is, without adding personal biases to the definition of value.

Posted by: Elliott Oti on December 24, 2003 01:57 AM

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>>or were the spikes in purchases not there until a year and a half ago?>>

Here on the taiga, the monthly pattern of alcohol consumption - and violent crime - has been strongly correlated to the arrival of paychecks since the invention of payed work more or less.

Posted by: Mats on December 24, 2003 03:24 AM

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Bimonthly means every other month. Don't you mean semi-monthly for the 1st & 15 paychecks?

I would submit that people who are truly living paycheck to paycheck don't purchase a lot of consumer electronics for their children at Christmas. They know they can't afford them and they teach their children to live with a lower economic expectation. Wal-Mart won't see these folks buying anything but essentials -- clothing, toilet paper, bedding, etc.

Perhaps more relevant statistics would be the ratio of "luxury" purchases to "essentials" purchases during those spikes.

Posted by: chelseags on December 24, 2003 06:08 AM

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People who live paycheck to paycheck, like the people I grew up with, are more likely to spend on consumer electronics. Television and videogames are more important. They will find ways to get the XBox and the big screen television (and nice rims on the car), you won't find them spending the odd dollars however.

I think as people go upscale, speaking from personal experience, they tend to spend on lots of things in small amounts, like subscriptions. These things add up and eat up disposable income. Also more upscale folks buy things in multiples. Joe6 has a digital watch, JoeMillion has 5. Joe6 has a cordless phone, JoeMillion has 3 different phonelines into the house.

I also believe that poorer folk will tend to hang out in many of the same shopping places as the middleclass, and so they develop the same tastes. They are not impulse buying.

Specifically for DVD players, they are very cheap and everyone is going to have them. You'll find all the bootleg films in communities where Blockbuster is absent. That economy is real.

Posted by: Cobb on December 24, 2003 07:58 AM

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People who live paycheck to paycheck, like the people I grew up with, are more likely to spend on consumer electronics. Television and videogames are more important. They will find ways to get the XBox and the big screen television (and nice rims on the car), you won't find them spending the odd dollars however.

I think as people go upscale, speaking from personal experience, they tend to spend on lots of things in small amounts, like subscriptions. These things add up and eat up disposable income. Also more upscale folks buy things in multiples. Joe6 has a digital watch, JoeMillion has 5. Joe6 has a cordless phone, JoeMillion has 3 different phonelines into the house.

I also believe that poorer folk will tend to hang out in many of the same shopping places as the middleclass, and so they develop the same tastes. They are not impulse buying.

Specifically for DVD players, they are very cheap and everyone is going to have them. You'll find all the bootleg films in communities where Blockbuster is absent. That economy is real.

Posted by: Cobb on December 24, 2003 08:01 AM

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snsterling wrote "This article might as well be about the incredible wealth of these people. I'm not saying I'd like to be in their situation, just that it is insulting to real poverty to pass off not being able to afford cutting edge electronics as living from paycheck to paycheck."

But living paycheck-to-paycheck isn't always about poverty-- there's plenty of well-off people who, for one reason or another (debt, poor planning, high rents, etc.) find themselves having to time their bill payments to their paychecks. It's a sign of financial instability, not absolute poverty.

I'm sure that the spikes on the 15th and 30th have been around for ages. Getting paid has so often been a cause for wasting all the money you get-- remember those James Joyce tales of the paycheck not making it home, and being spent all at the pub? And remember that Cat Stevens song? "Another Saturday Night?" "... I got some money cause I just got paid."

Oh, people have been wasting lump sums ever since lump sums existed.

Posted by: Verbal on December 24, 2003 08:08 AM

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The heartening news that Wall Street bonuses are back makes me wonder again how the very high average compensation of people in the securities business is sustainable. I have been an investor for 40 years, have had many brokers, and paid a great deal of attention to what passes for intelligence on Wall Street. In comparison to people in my profession, scientific research, I know that Wall Street attracts a much lower order of talent. So how is this compensation differential maintained? It has to represent continued anticompetitive practices and collusion in some way.

Posted by: BobNJ on December 24, 2003 08:21 AM

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Maybe Page 2 of the article has the answer?

Take a look at the text:

Wal-Mart, which is based in Bentonville, Ark., began its layaway plan in 1962 with its first store. This year it began cashing payroll checks and government-issued checks for a fee, in a program that has already spread to 20 states and is expected to be available nationwide by next year. It began "as another form of convenience at the register," said Melissa Berryhill, a Wal-Mart spokeswoman. At the same time, she added, "we are aware that we have some customers who don't have bank accounts."

It is quite possible that the spikes were there - but they must have become most noticeable after WalMart began cashing pay checks.

Posted by: Sai on December 24, 2003 08:24 AM

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The military commissaries and exchanges have for decades expected payday crowds and peak sales -- and these retailers adjust promotions, discount or clearance sales, and delivery schedules around the twice-monthly event. When the 15th or 1st falls on a weekend, (as in November) the impact is intensified. If WalMart has NOT been tracking these peaks and valleys it would have been one of the very few areas where DECA, NAVEX, AAFES and that ilk have been in front of a retailing trend.
(Not likely ...)

The questions go to the spread and height of the spike -- are sales in the mid-month period steady or particularly low? -- and the stock assortment being moved -- toothpaste and shoe polish, or toys and electronics?

Oh, an interesting convergence looms. Radio Frequency Identification (RFID) tags are being demanded by 2005 by two major players in the U.S. -- the U.S. Military, and WalMart (AAFES and the exchanges will be dragged along with the effort to tag bullets, vehicles and rations -- meaning that PX staples such as toothpaste, shoepolish, foot powder, condoms, tampons, etc etc from the commericial retail markets will be tasked to get RFID'd.) Now, the military is pushing this in order to FIND stuff in disorganized environments -- if you have a hundred 40-foot containers of cargo in garrison and have a critical need to offload the toilet paper, they do NOT want to have to unload EVERY container to find it. Nor do they want to have to shuffle a file drawer's worth of bills of lading, manifests, TCMDs (Military "Transportation Control and Movement Documents) and airway bills to figure it out. The vision is all the items will be tagged and broadcast out to a handheld widgit that says what's where. "I'm a load of .223 ammo." "I'm a load of olive green bras and panties." "I'm beer. -- ssshhh, don't tell the host gov't." So one private can drive around in a fork lift, find the toilet paper, and haul it off to anxiously awaiting troopers. (Also, if a container of Marlboros or missiles is hijacked -- the RFID would be handy for the military investigators in tracking, tracing, and perhaps calling in an airstrike against the fence's warehouse...)

WalMart isn't so interested in finding stuff. They know where their stockrooms are and they AREN'T in tents in the landmarkless desert that can only be located by grid co-ordinates and a GPS system. WalMart has a fixed address, and another problem. They want to minimize inventory and labor costs. So they want to be able to move stuff from truck to sales fixture to cash register with mimimun delay and without anybody having to "document" the moves. So, RFID tags on the product and fixtures.

But that will mean layoffs in stockroom labor and clerical workforces at WalMart, and other retailers who get on the bandwagon. Scut work of matching the barcode and text-labels on the boxes with the paperwork all goes away. A bunch of jobs for the semi-literate go away too. There will be new jobs for cleanroom techs to build RFID chips and batteries and antenna, and there will jobs for mid-level data people who port orders to requisitions to load lists to pallets to routing to receiving appointments to inventory ... but those will be fewer jobs for a hiher-skilled worker.

And again, this will be starting up in America's largest employer's labor force in one year.

At the same time, the Uniform Code Council, the international trade group that standardizes product barcodes, will be rolling out the new, longer, Global Location Code, Global Transportation Number, and (More) Universal Product Code (number) This leverages existing EDI, bar code, optical scanner, and business-to-business database sharing in order to achieve many of the same ends as RFID. This project has a "sunrise" date of ... 2005. Low-level box kickers and paperpushers are going to be competing to demonstrate they can master the new techniques ... and those who can't -- or can't quickly -- are going to be looking for a different job.

But the ultimate posture goes back to this payday peak question. If the customers only buy Friday thru Sunday or the 1st and 15th, why should a retailer keep static inventory on the shelves all the rest of the month? Pump up the stock on Thursday night the 13th of November, and let the residual carry thru until the 27th. If the shelves are bare on the 24th -- well, that unusual customer will learn to adjust and come in when the sales are happening and the products are in-stock. It is liable to be a feedback loop.

Which then opens a niche for retailers such as "Tuesday Morning" -- catering to a slightly different customer, with more leisure time and maybe more disposable income.

Also, see Bruce Sterling's notions about the post-sales uses of RFID on consumer products. The uses to which hackers might put ubiquitous chips are amazing and sometimes frightening.

We only have about 15 months to figure it all out. As far as I can tell no public policy figures are addressing the questions except maybe Donald Rumsfeld, who, again, is ONLY looking for his toilet paper in a great big sandbox. His optimal solutions are not, necessarily, optimal for the rest of us.

Posted by: Pouncer on December 24, 2003 08:50 AM

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snsterling

It seemed to me you were making a comment about the larger question of why people living paycheck-to-paycheck would be buying optional consumer electronics like DVDs or CD players. If you were simply talking about this specific anecdote, you are likely right though your comment probably has limited relevance to the larger economic picture.

pouncer

An interesting observation. This seems to be a part of the ongoing phenomenon of disappearing low-skill employment. Given that some portion of society won't be trainable to more cognitively demanding jobs, what is to become of them? Mass unemployment/destitution? Second-class citizenship? A question for the coming decades.

Posted by: jimBOB on December 24, 2003 10:04 AM

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jinBob
free food and circuses

Posted by: big al on December 24, 2003 11:45 AM

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14%? Most credit card interest rates are in the 20-24% range!

Posted by: Wert on December 24, 2003 10:58 PM

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