Prices are dropping. And for those of us celebrating Christmas with our usual shopping binge, that's not a bad thing. It's also not bad if you've been waiting forever to buy that one expensive thing (big TV, dining room table, couch, or whatever). There's no question that over the next year, you'll get quite a bargain.
But, as this article notes, there's a downside to prices dropping too much. The more the prices drop, the less businesses make on that sale. The less businesses make, the less money they have to pay their employees. So employees get cut and benefits get cut. And the more employees that get cut, the fewer people who have money to buy all those goods, even if they're now cheaper. And thus begins a vicious circle of decreased prices, profits, jobs, and spending.
Don't get me wrong, I'm searching my heart out for Christmas bargains for the family, and it's possible that some time over the next year I may finally break down and buy my own real dining room table (versus the cheapo Ikea fold-down I've had for 15 years) that I've been pining for, forever. And while Charlie Brown would remind me of the true meaning of Christmas, the economy could use a little of Snoopy's crass Christmas commercialism right about now.
Consumers reduced their spending at retail stores again in November while the costs of goods before they reach store shelves also continued to drop, more bad signs in a recession that appears to be deepening.
Businesses also cut their inventories by the largest amount in five years, the government said Friday, a sign the recession will force further cuts in production....
Falling prices might sound good for buyers, but a prolonged, widespread decline would do serious economic damage, dragging down incomes, clobbering home prices even more and shrinking corporate profits....
The latest economic data illustrate the negative cycle currently bedeviling the economy: consumers tighten their belts as the unemployed — and those who fear for their jobs — spend less, reducing retail sales and leading companies to cut back further.
