Tuesday Report -September 4, 2001

September 4, 2001

U.S. Economy Following Unusual Slow-Down Pattern
Trade Exchanges Anticipate Record Sales This Holiday Season

For the first time ever, the manufacturing and industrial sectors of the economy are slowing down before the consumer slow-down. Not knowing what the consumer will do, retailers are already hedging their bets for the coming holiday season by scheduling orders for goods as close to Christmas as possible.

(Manufacturers usually ship the bulk of holiday merchandise in August and September, but retailers are already canceling, deferring and cutting back orders at unprecedented rates.)

Internet holidays sales, according to Jupiter Media Metrix, will be "much more modest" than last year's 54% increase. Like last year, web sites of brick-and-mortar retailers, not pure-play internet companies, will get the overwhelming majority of holiday sales.

Given these conditions, trade exchanges across the country should do record business this holiday season.

Cendent's Move Shows That Excess Inventory Needs More Outlets

The recent acquisition by Cendent of Cheap Tickets, an internet-travel agency, reinforces the problem that the travel industry has...namely the need for more conduits to move their unsold inventory.

Cendent owns and franchises a global network of travel-service brands which includes rental-car company Avis Group Holdings and hotel chains Ramada Inn and Howard Johnson. Their forward thinking simply reinforces the fact that every day a percentage of their hotel rooms and cars sit empty--and it's costing them money.

So the Internet, i.e. Cheap Tickets and their earlier acquisition of the global-reservation system Trip.com, will enable them to move more of their excess inventory. The barter marketplace is another avenue to move excess travel inventory, but as yet the industry hasn't grown to the size and stature that can begin to handle the enormous inventories available.

Editor's Note: Last year consumers spent $13.2 billion on airline tickets, hotel rooms, and rental cars online according to data compiled by Forrester Research. That is three times the $4.3 billion consumers spent last year on computer hardware, the next biggest category of online shopping.

U.S. airlines are seeing startling change which is taking a toll on the carriers' bottom lines as revenue per available seat mile plunged 11.8% from a year earlier--the biggest monthly decline in two decades. The first quarter of 2001 saw the largest collapse in business travel (percentage of full-price coach and first-class tickets booked) since 1992.
Air-cargo volume posted its steepest decline as well, volume fell 9.3% in July, decline since the economic slowdown began last year. These airlines link global supply chains and are crucial for just-in-time deliveries. Unfortunately, the economic malaise is causing many companies to shrink production and inventory levels...which in turn saps air-delivery volume.
Nontraditional advertising, such as direct mail, will outpace demand for traditional advertising according to an analysis by Merrill Lynch & Co. They also forecast total advertising outlays in the U.S. will fall 4% this year, with a rise of but 1% next year. Just two months ago the brokerage firm was forecasting a drop of just 0.7% this year, and a healthy 5.1% rebound in 2002...
Federal Reserve Board Chairman, Alan Greenspan in a speech at the agency's annual gathering at Jackson Hole, Wyoming, told his audience of economists, bankers and business officials that the Fed has limited powers these days due to the easy cash consumers can obtain from their home equity lines of credit.
Additionally, Greenspan says that 401(k) salary set-aside accounts, with individuals getting monthly or quarterly statements showing their retirement balances, has had an effect on the consumer spending in this economy. In effect, when one receives such a statement saying their wealth has increased they feel richer, and spend more.
Ad agencies, large and small, are struggling with a dearth of new business. The reason? Companies are cutting advertising.

In a 1998 survey by Washington-based American Advertising Federation, 27% of companies polled divulged that advertising would be the first cut in a downturn. For the first seven months of 2001, advertising by the largest ad agencies in the world is down 12.6%.

Nationwide, classified ads on average are down about 12%, the Fresno Bee newspaper in California has implemented giving away Wendy's hamburgers to people placing garage-sale ads.
The International Reciprocal Trade Association's 22nd Annual Barter Congress will be held September 20-23 in Denver at the Westin Westminster Hotel. For more information call IRTA at (716) 424-2964, or check out "Events & Registration" at www.irta.com.
And two weeks later, October 4-6, the National Association of Trade Exchanges has scheduled a regional convention in Akron, Ohio. For more information call NATE at (440) 835-3654, or register online at www.nate.org.