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Thursday, December 03, 2009

COBRA's the Grinch that Will Steal This Christmas

Well, Black Friday’s sales figures are in and they are rather dark. Although, the usual spin doctors were out in full force implying people in between jobs are out shopping for things they don’t really need, this shorten holiday shopping season will most certainly be a dud.

According to the NY Times:

Some 195 million consumers visited stores and Web sites over the weekend, up from 172 million last year, according to the National Retail Federation, the trade group that reported sales results on Sunday afternoon. Average spending over the weekend, however, fell to $343.31 a person, from $372.57 a year ago. Total spending was $41.2 billion — about the same as last year.

We all know about unemployment at 10.2% and rising. And, we also are aware that the true unemployment rate (U-6) is 17.5%. Wages were flat again this year. Everyone knows of, or heard about, unused credit card accounts closed and existing lines of credit being reduced by prickly issuers.

The NY Times uncovered the breadth and depth of the Great Recession on Main Street with their food stamp usage in the US, article. Thirty-Six million Americans, or 1 in 8, and nearly 1 in 4 children, use food stamps. Twenty thousand people a day are signing up for assistance.

From the Times:

In sheer numbers, growth has come about equally from places where food stamp use was common and places where it was rare. Since 2007, the 600 counties with the highest percentage of people on the rolls added 1.3 million new recipients. So did the 600 counties where use was lowest.

Furthermore, that early in the year surge of people filing unemployment claims, 700,000 weekly, as companies pared-down expenses, received a 9-month subsidy from the stimulus package to pay 2/3 of their COBRA health insurance premium. Those first beneficiaries are starting to pay this month an extra $500, $1,000, or more for their family’s healthcare until a new job is found or until COBRA runs out. Suppose 200,000 workers from each week in the first quarter are now employed, that leaves (500,000 workers x 12 weeks) 6,000,000 shoppers who will think twice before spending.

Either way, Wal-Mart (WMT) and Amazon (AMZN) both have a brutal competitor in the likes of United Health Group (UNH) with little elasticity in its product.

If unemployed consumers are sitting at home deciding whether to go shopping, as their COBRA healthcare premium rise as much or more as their monthly unemployment benefit, chances are they‘ll likely stay home this holiday season and entertain Mr. Grinch.

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