The Gap has announced it is closing 20 percent of its stores in the U.S., and not opening any new ones. Instead, it's focusing its investing in Asia. It made this announcement before the holiday shopping season's results come in. Imagine what's coming in the first and second quarters next year.
I expect a lot of chains' shuttering stores, the commercial real estate vacancy rising from its already high 11 percent to 15 percent or worse, a tipping point for foreclosures. And the shrinkage in chain units is nothing compared to the under-reported closing of independent retailers' shops. Quite a few mid-price restaurant chains have gone bankrupt this year, including the ones operating Chevy's and El Torito Mexican restaurants (11,000 jobs), and operating Marie Callendar's and Perkins.
Much of the shrinkage in number of units, stores, offices, sales forces, or in the revenues of remaining operations, is reported only in the varied industry's trade journals and never brought together and presented in one place at one time. The public, therefore, doesn't see the size and scope of the destruction. The average dentist's revenue is off 30 percent, and profit is off 40 percent. The population of mortgage brokers and loan officers has shrunk by 40 percent, and those remaining are earning half of what they did three years ago. Privately run hospitals in many parts of the country, including where I live, are closing outlying locations, consolidating, and erasing jobs - one in my area recently eliminated 1,400 jobs. Almost every industry is shrinking. Only if you stitch all these facts and trends together can you see the next evolving crises:
As businesses close or shrink and unemployment stays atop 9 percent and under-employment atop 20 percent, state and federal tax revenues keep going down, down, down, as their debt and costs of debt service rises, rises, rises. Several municipalities are opting for bankruptcy instead of further bail-outs. This should scare investors out of municipal bonds, depriving other cities access to more borrowing, and triggering more bankruptcies. It is a bleak picture. If the realities of each industry were pulled together and reported in a clear and cohesive way, people would rightfully be far more terrified than they already are.
One thing about it should be clear. More confiscatory draining of money out of the private sector to purportedly fund government spending on job stimulus is not the solution. Taking a dollar from your left pocket, shredding one third of it - representing the costs of government's handling - and putting the remaining two-thirds in your right pocket results in less, not more. The federal government is now a black hole, and dollars put in simply disappear. It must be shrunk to fit inside the real economy. Further, government job stimulus has failed. If any stimulus ought to occur, it has to be aimed at private investors and their capital, which is either paralyzed, exiting, or already gone from the market.
Obama has unleashed many negative forces on the economy. One that is contributing mightily to this mess and is grossly under-reported is the enormous new tax-of-sorts levied on businesses large and small, in the form of compliance costs for an avalanche of new and coming regulations. Again, only if you read industry trade journals do you see how pervasive the regulation explosion is in every industry - from farms to banks to small manufacturers to restaurants to you-name-it. (There are new regulations about dust on farms.) These are taxes that bring no revenue to government, serve only to expand government and its burden on the economy, but cripple business' ability to grow and thus to employ.
Maybe Obama, his minions and those in Congress really don't understand. Each and every time a new or increased cost is imposed on business, business reacts to it. That reaction takes one of three forms: 1) raising prices and often reducing gross revenues and volume by doing so, thereby reducing employees or converting full-time jobs to part-time jobs; 2) outright cutting work hours of existent employees, reducing jobs, and not hiring; 3) moving investment from a disadvantageous place to a more advantageous place. A big company like Microsoft invests in factories overseas. A restaurant franchisor stops growing here and invests in opening units in other countries. Small business owners simply stop investing entirely, and hoard cash.
Obama's Job Creation Czar, Jeffrey Immelt of GE, appeared on 60 Minutes and showed off his firm's giant new factory and company town in Brazil. Thousands of jobs created there. That same initiative creating 400 jobs here. Whoopdedoo.
I don't fault Immelt, though. As he patiently explained, his responsibility is to his shareholders, thus he must invest where it makes sense to invest. And under his buddy Barack's regime, that isn't here.