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American Morning
Economists Concerned with Deflation
Aired November 26, 2001 - 09:34 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JACK CAFFERTY, CNN ANCHOR: Ringing the opening bell on Wall Street following an up day in the abbreviated session on Friday. The two women ringing the bell today, widows of two of the men lost in the terrorist attacks on America that died in the collapse of the World Trade Center on September the 11th.
A 125-point gain in the shortened session on Friday for the Dow, the Nasdaq picked up 28, and the general sense of optimism about where the stock market and perhaps subsequently the economy is headed seemed to have continued to pervade.
The holiday shopping season got underway gangbusters on Friday. The second, I think, biggest shopping day of the year. And while there was a lot of traffic and sales estimates ranged from anywhere from down 1 percent to up 4 percent compared to the same day a year ago, a lot of the -- a lot of the shopping was triggered by bargain hunting and prices that have been discounted and cut and slashed to where it's a buyer's market out there and there are good deals to be made. However, given that prices are low already, questions about how the rest of the holiday shopping season may wind up.
To answer those questions and to talk about a couple of other things, Andy Serwer who is the Editor-at-Large, "Fortune" magazine, good morning.
ANDY SERWER, EDITOR-AT-LARGE, "FORTUNE" MAGAZINE: Jack, how you doing?
CAFFERTY: I'm all right.
SERWER: Good.
So this whole thing about shopping, I think we're all pleasantly surprised or at least he numbers are coming in pretty good. Wal-Mart did its best day ever on Friday, $1.25 billion in sales.
CAFFERTY: In one day.
SERWER: In one day, $1.25 billion. Pier 1 is reporting this morning that its numbers are looking good. Amazon is saying that it's selling 12,000 items per hour more than it did last year. But as you said, the question is, are any of these companies making any money, because you can sell anything you want out there,...
CAFFERTY: Sure.
SERWER: ... but you have to have a bottom line and that's what economists are concerned about. The word is deflation, prices going down.
CAFFERTY: How big a problem potentially is that?
SERWER: Well all you have to do is say one word, Japan,...
CAFFERTY: Right.
SERWER: ... and you look at the economy there and deflation has reeked havoc on that economy.
Here's how it works. Say you want to go out and buy a DVD player for $179 but you have a feeling prices are going to go down. You could buy it six months from now for $139, you hold off buying it. Then a few months later you say, you know, I think that's going to go down to $119. You get in sort of a death spiral because prices go down, companies start making less, that causes consumption to go down, people get laid off and that's what economists are concerned about.
CAFFERTY: That works until your kid discovers that the kid next door got the DVD player for $179 and then it's you better have it in the house by tomorrow.
SERWER: See that's where I think we're different from Japan...
CAFFERTY: Absolutely.
SERWER: ... for a big reason, we are much more consumption oriented.
CAFFERTY: Sure.
SERWER: People like to buy stuff and there's stuff that people are buying out there this season. We've talked about the XBox, all the GameCube, those things are flying off the shelves. Anything to do with "Harry Potter" is apparently flying off the shelves. People are buying cashmere throws. Now I don't know if your family is going to be buying any of those, Jack,...
CAFFERTY: I don't even know what that is.
SERWER: ... but apparently cashmere again is it (ph). Maybe Pashmina is back. That was big last year, but people are buying this stuff.
The other thing is prices are still rising in a couple of other sectors that are very important. Food, price of food is still going up. Education, as you probably know,...
CAFFERTY: Oh yes.
SERWER: ... still going up.
CAFFERTY: Yes, indeed (ph).
SERWER: Health care, still going up. So I don't really think we have to worry about deflation. Right now let's just enjoy prices being a little bit lower than they were.
CAFFERTY: The other thing that may happen today is we might have -- the government may tell us something we already knew, which almost never happens in this country, and that's that we're in a recession.
SERWER: The National Bureau of Economic Research headed by Martin Feldstein, but he better hurry up, because if he doesn't call a recession, pretty soon we may be done with it.
CAFFERTY: There you go. Andy Serwer, "Fortune" magazine, thanks.
SERWER: Thanks, Jack.
CAFFERTY: Paula.
PAULA ZAHN, CNN ANCHOR: Hey, how were the sales of fleece blankets over the weekend? Those are the kind you can actually throw in the washing machine when you have little kids around the house that make funny messes.
SERWER: Not as fancy as that cashmere.
CAFFERTY: Cashmere.
SERWER: The cashmere is going, which is a higher-end thing (ph).
CAFFERTY: How much do those sell for?
SERWER: More than I have.
CAFFERTY: Cashmere (INAUDIBLE).
ZAHN: A lot more than a fleece blanket.
CAFFERTY: But you're right, we don't let the kids buy anything until you read the label and if it says machine washable, then they can get it. If it says...
ZAHN: Exactly.
CAFFERTY: ... dry clean,...
ZAHN: Forget it.
CAFFERTY: ... it goes back on the rack.
ZAHN: All right, thanks, gentlemen.
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