Black Friday Sales Down -- It Goes Back to Benefits and Compensation?

I heard it this morning. Black Friday sales were down. Not only were they off last year's huge numbers, they were well below forecast. Many economists and other prognosticators were shocked. Of course, people were going to spend more as they are paying far less for gasoline.

That connection doesn't hold; it never will. People, by and large, make larger purchases, the kind that fuel the Christmas economy, when they feel good about their futures. They do it when their long-term view of their personal economy is optimistic. Today, it's not.

Why not? Yes, fuel prices are down and down significantly. But, take-home pay is not increasing for most people. I think that most people view that fuel prices down are a temporary phenomenon -- a good one, but not one that will last for the long haul. But, take-home pay has been eroded for years now. Across the board pay goes up nearly every year, but not by much. In a good year, it might be a 3% to 4% increase. In a bad year, it's below 2%. At the same time, the employee's portion of the cost of their own benefits is increasing. Have you noticed your health plan? Your deductibles have gone up, your out-of-pocket maximums have gone up and your premiums have gone up by a bigger percentage -- likely significantly bigger -- than your pay. The same can be said about other employee benefits. Either you are paying more or getting less or both.

Does this mean that your employer is evil? They might be, but not because of the scenario described here. Companies have to be competitive in the marketplace. If their cost of goods sold or cost of providing services increases by too much, then their margins will be down. And, if that happens, then those pesky owners, be they the people who started the company or the broad group of shareholders will make less money. They don't like that. In fact, they are in business to make money.

I know; that's not a nice way of thinking about it. But, suppose you started a business. Wouldn't you want to turn a profit? After all, the person starting the business takes a risk. There is point in taking a risk if the reward is not at least commensurate with that risk. If you invest in a company, you expect that company to have increased, not decreased profits. So, the people who run the business cannot afford increases in labor costs that cut into those profits by too much.

Going full circle, employees notice what's in their paychecks. If your employee receives less money in the first paycheck of 2015 than she did in her last paycheck of 2014, it just doesn't matter how big you told her that her raise was. To her, it looks like a pay cut. When she sees a pay cut, she spends less, not more. And, because she is expecting that, Black Friday was not as busy as the stores wanted.

The Hidden Side of Health Care Costs

I'm not always a fan of Employee Benefit Research Institute (EBRI) reports, but this one resonated with me. 61% of workers report an increase in health care costs. But, the bigger story is that most of them say that this increase is affecting them in other ways. In these days of half the political world touting self-reliance and the other half touting the government providing for all, this survey through my lens says that neither works on an island. We need a bit of both.

So, what does the report say? It tells us that among the 61% whose health care costs are increasing (I am reading that health care costs for this purpose are the sum of premiums and out-of-pocket costs), as a result of this:

• 32% have had to decrease the amount they are saving for retirement
• 57% have decreased the amount they are saving for other purposes
• 22% are having trouble paying for necessities such as food, heat, and housing
• 38% are struggling to pay other bills
• 1/3 have seen increases in credit card debt
• 27% have essentially drained their savings
• 16% have had to borrow money

If I were on one side of the aisle (in Congress) or the other, I would say (you know which side comes down where on this one):

• This is exactly why we need the Affordable Care Act (ACA, PPACA, ObamaCare)
• Forcing people to have what the government deems the proper health insurance cannot work

Let's consider what is happening though. When I was in my teens, oh so many years ago, most of the adults around me were retiring in their late 50s or early 60s. They looked forward to their golden years. They had defined benefit pension plans. Now, unless they are among the particularly fortunate group, their means of saving for retirement is a combination of a 401(k) plan and whatever they can save on their own. Ask these people when they plan to retire and most will laugh at you. They cannot see that on the horizon.

Also, back in my teens, by the time people retired, they owned their homes free and clear. Now? A recent survey that I read (sorry, I can't find the link) informed me that at age 65, more than half of homeowners still have a mortgage and for many of them, it has a very substantial balance.

Whatever the reason, and that's for a different day and a different post, we need some real changes. In the credit card era, people lose track of what they owe. And, much like the federal government, it's tough to make a dent in that when so much of your income is used for debt service. Unlike the federal government, however, the average guy on the street just can't borrow money at interest rates from 0% to 4%. No, your credit card company probably charges you some amount in excess of 10%.

Do I have the answer? No, I don't. If I did, you would hear me screaming it far and wide. But, in a day when take-home pay for many Americans is decreasing (higher taxes, higher employee cost of benefits) and the cost of goods, services and debt service is not, it gets really difficult for the economy to grow.

To me, this is the ultimate hidden side of health care costs. Because of the increases in personal costs of health care, the non-health care side of the economy is stifled.

We need change, but I don't see that kind of change-a-coming.