Why a rise in retail trading may signal another retail depression is hard to pinpoint. The indicators that one would look for in such a situation include: a slowdown in consumer spending, higher costs for goods and services, and fewer consumer discretionary income. In addition to these indicators, the stock market may also take a hit. These factors combine to create what many retail analysts call a “trend reversal”, when the current trend becomes unsustainable and the current level of activity becomes unprofitable for retail businesses. What this means for you as a retail investor is that you should act now, before the trend reverses and the retail depression gets worse.
As stated earlier, a slowdown in consumer spending combined with higher costs for goods and services leads to higher retail prices. This, in turn, reduces the profitability of retail operations and could lead to a decrease in retail sales as well. As the supply of goods and services increases, the demand for goods and services decreases. If this happens, the supply side of the business cycle suffers, and the current momentum of the market begins to reverse, resulting in a bearish environment for retail trading.
Another reason that another retail depression could be in the cards is the diminishing ability of retail investors to borrow additional funds to finance their ventures. Since retail investors rely on issuing loans from their portfolios, if the overall spending decrease leads to a reduction in retailing, the number of retail loan applications will decline along with it. When this happens, many retail investors will no longer be able to meet their obligations. As a result, some will be forced to seek alternative financing, which could have a negative impact on the overall health of the economy. As such, if the market continues to show signs of weakness, retail investors will likely become more cautious as they seek a source of additional funding.
Another thing that may lead to another retail depression is the general decline of consumer spending across the board. It seems that consumers have pulled their budgets back from discretionary items, such as vacations, clothes, and other non-urgent necessities, and are now focusing more on their credit cards and other assets. If this trend continues, retail inventories will drop, and the downward pressure on retail investors will continue.
Another thing that can lead to a decrease in retail sales is an increase in unemployment, or stagnant unemployment. When the unemployment rate goes above the level of natural population growth, the unemployment rate affects the demand for retail products, which in turn, will affect retail investors. In fact, when unemployment dips below the natural level, the effects on retail investment are positive for the economy.
One last reason that another retail depression may be in the cards is the dwindling environmental conditions across the country. As environmental concerns drive more consumers to store closer to home, and businesses move closer to the centers of population, the effects of distance on retail investment become negative. When the environment becomes less environmentally friendly, the effects on local business investment become negative. Again, this can translate into lower retail sales and slower overall economic growth.
There are many reasons that can signal a market depression. However, one of the most important reasons that a market depression can occur is the reduced buying power of the consumers. The diminished purchasing power can lead to reduced business investment, slower overall retail growth, and less discretionary income for retail investors. If the depressed economy persists, it is likely that investors will begin to feel the pressure from Wall Street and business lenders that their small businesses cannot survive without additional funding, a substantial amount of which may not be easily obtained.
If you are a retail investor looking to buy stocks, take a hard look at the numbers. If you find a significant decline in the retail sector, especially in comparison to the overall stock market, you should be concerned. Although the stock market may have declined, there are still too many opportunities for retail investors. As more retail investors suffer the same fate, the market will once again become a buyers market and the chances of seeing a rise in retail trading will grow.