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In INDUSTRY:
IN THE
NEWS – Holiday Spending: Set to Fall
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Often in times of economic
slump and a perilous employment environment, retail sales are one of the most
prominent sectors of the economy to be hit. With IBISWorld expecting holiday
retail revenue to fall by 3.3% in 2008 from the 2007 figure, many of the
country's more opulent retail industries face challenges.
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| This year’s Christmas shoppers will have one thing at the top
of their list – price. Shoppers will be increasingly price sensitive, with many
drawing up shopping budgets and sticking to them closely. Major gifts and
extravagant spending will be things of the past this holiday season, with
holidays, fine jewellery, plasma and LCD televisions and laptops all taking a
dive in favor of less flashy, more affordable presents. |
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| As such, Christmas and Thanksgiving are set to be somber
times for retailers, and 2009 may not provide a great deal of relief.
Home Improvement Stores are set to experience consecutive years of falling
revenue, as millions of Americans move out of their homes, and few buyers pick
up the slack. |
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| Other purveyors of luxury items are not expecting a Christmas
miracle, either.
Jewelers ,
Florists,
Record Storesand
Liquor Stores are all facing a challenging 2008 and 2009, as consumers put
away the credit card in the face of relentless negative economic news. |
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However, the dismal economic climate and poor consumer sentiment hide a bonus
for some retailers. Discount stores of all sorts are bucking the national trend,
as shoppers look for bargains.
Big Box Retailers such as Wal-Mart are set to grow by 4.7% in 2009, while
Used Car Dealers will benefit from the legions of shoppers fleeing more expensive
alternatives, increasing revenue by 4.2%.
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| Also interesting is the expected boom in
Online Shopping and Auctions. As people become more and more thrifty, the
potential for bargains online is going to cause a rush of sales as revenue
increases for online firms by 16.9% in 2009. So, while times are tough, and
Christmas stockings may be a little lighter in 2008, there are some industries
that can stay positive and ride out the storm. |
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GLOBAL TRENDS: Global Recession?
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What a year it has been in the global economy. Oil prices
went to $160 per barrel with a suggestion of beyond $200, but fell well below $70
per barrel by the end of October. Over 50% of the world value of listed stocks was lost
at one stage, a massive $30 trillion - equivalent to nearly half the world’s
GDP, and financial institutions have crashed in the USA and elsewhere.
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| But, while the US appears close to – or already in –
recession, the global scene provides less cause for pessimism. In fact, since
1950, there has not been a year where global GDP has fallen. In 2008, the
world's economy is set to grow by 3.0%, and 2009, while set to be a poor year,
will still create extra GDP to the tune of 1.4%.
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| While some of the former glamour industries face challenges in
2009 – such as
Investment Banks,
Commercial Banks ,
Pension Funds and
Insurers– there are enough boom industries riding out the challenge to
ensure future growth. |
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| With China remaining resurgent and dedicating hundreds of
billions of dollars to stimulating their economy, miners are set to stay strong.
Iron Ore Miners in particular are set to thrive, growing by 15.2% in
2009 after astonishing 81% growth in 2008.
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| Elsewhere,
Internet Service Providers (7.6% growth),
Biotech (14.9% growth) firms and
Pharmaceutical Manufacturers (5.9%) will continue their robust growth they have had
for over five years. Demand from growing economies in developing nations will
continue to ensure that the global economy is largely resistant to recession,
even though some of the biggest economies slide into a prolonged slump. |
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Industry Risk: "Game Over" in a recession? Not for video games, it's not.
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As the video game industry has matured into a mainstream form of entertainment,
industry observers have speculated as to how recession-proof the industry could
actually be, given the appetite of "core" gamers to continue their hobby and,
more recently, the success of the Nintendo Wii in reaching a more casual gaming
market. As EA Sports president Peter Moore is fond of saying, "the proof of the
pudding is in the tasting", and recent months have given us a lot to digest. |
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| On the whole, the video game industry appears to be weathering
the current economic crisis very well. October NPD numbers show that sales for
the month were up 18% compared to a year earlier. More recently, the November
launch of "World of Warcraft: Wrath of the Lich King" set an all-time sales
record for a PC title, moving 2.8 million copies in a single day. Microsoft's
recent price cuts for the Xbox 360 have paid dividends, with indications that
Black Friday sales of the console were up approximately 25% on last year's
post-Thanksgiving.
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| At the same time, there have been signs that the continuing
good fortunes of the industry are not evenly spread. Among recent examples,
Electronic Arts announced a loss of $310 million for its second fiscal quarter,
despite increased revenue, and has shed some 600 jobs. THQ posted a $164.8
million loss over the same time period and closed five of its studios,
terminating 250 employees. Midway posted losses of $75.9 million for the third
quarter of the calendar year, and is resting its hopes over the holiday season
on sales of its comic-book licensed title "Mortal Kombat vs. DC Universe". |
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| For the industry as a whole, IBISWorld forecasts continued
strong revenue growth of 12.5% over 2009. Over the coming holiday season, games
high on Christmas lists should include Activision's "Call of Duty: World at
War", Nintendo's family-friendly "Animal Crossing: City Folk", the PC version of
the acclaimed "Grand Theft Auto IV" (a hit on consoles when released in April)
and Ubisoft's reboot of its "Prince of Persia" franchise. |
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Economic Scoreboard
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- The National Bureau of Economic Research determined at the end of November that
the US economy has been in recession since December 2007. The approach used by
the NBER differs from the oft-cited method of observing two consecutive quarters
of negative GDP growth, and instead looks at trends in production, employment,
real income and other indicators.
- As expected, preliminary third-quarter macroeconomic data release from the
Bureau of Economic Analysis showed that the economy contracted over the three
months to the end of September. The third-quarter data released in October
showed a GDP contraction of 0.3%, which was revised to a more detrimental
decline of 0.5% in November.
- Consumption expenditure declined at a seasonally-adjusted annualized rate of
3.7%, the most rapid quarterly decline in consumer spending since the second
quarter of 1980. Spending declined across a wide range of categories as a
deteriorating labor market has left consumers severely risk-averse, postponing
non-essential purchases such as transportation and clothing (the former being
harder to obtain than in the past in part due to the effect of the credit crisis
upon access to automotive financing).
- Investment in non-residential equipment and software declined at the fastest rate since the first quarter of 2002 amidst worsening corporate profit conditions and the continued effects of financial market turmoil. Though the economy received a boost from international trade, the spread of economic malaise across the globe and a higher US dollar in recent months has meant that this boost from exports was of a lesser magnitude than was observed in previous recent quarters.
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