Inflation is at its highest level in decades. Russia's invasion of Ukraine is choking off food and energy supplies, and the stock market is shedding value. Businesses are carrying too much inventory, closeouts and excess inventory have become a problem again. Does all of this mean a recession is inevitable? It's entirely possible we are heading toward a recession where company's want to discontinue dead inventory and sell overstock merchandise to create cash flow. One definition of recession is two quarters in which the economy, measured by the GNP, shrinks. So is it possible we're already in one?
By the time a recession is officially called, we’ll be either well into it or almost exiting,” said Josh Bivens, the director of research at the left-leaning Economic Policy Institute. Recessions in the US are officially declared by a committee of eight economists at the National Bureau of Economic Research (NBER). There is no hard timetable for determining recessions, but it often takes a year before the committee makes an announcement. (There are some common rules of thumb, like two quarters of negative gross domestic product — but these aren’t hard-and-fast rules, and even those metrics are backward-looking.) Fears of a recession have surged as the Federal Reserve lifts interest rates to cool consumer demand and tame the fastest pace of inflation in four decades. Prices have risen more than 8% from a year ago, according to some estimates, making it more difficult for Americans to afford food at the grocery store and gas at the pump. Many economists agree that the country isn’t in a recession yet, although there are some worrying signs of overstock inventory ahead. Closeout brokers and closeout distributors are gearing up because in tough times these discount companies often flourish.
The recession calls are getting louder on Wall Street, but for many of the households and businesses who make up the world economy the downturn is already here. Take Gina Palmer, who runs She Salon on Atlanta’s busy Northside Drive west of downtown. She’d ordinarily expect her business to be alive with customers on a Friday morning. But on that day late last month, it was largely empty and quiet, save for a few employees. With summer break moving into full swing, her clientele is preoccupied with affording summer camps for their kids amid soaring food and gasoline costs. Consumers fighting to keep kids in school, put food on the table and gas in their cars are forced to choose between things they want and things they need. Businesses in the discount market are getting rid of excess inventory and closeouts in an effort to sell overstock inventory and keep inventory lean. Closeout brokers, closeout websites and other inventory liquidators understand how challenging recessions can be and they want to be prepared. Many are shutting down 3PL warehouses to save on high storage fees and make room for new inventory. Having too much inventory in an environment of rising prices and interest rates is dangerous.
When people look at their budgets, the first thing they cut is self care, Goldman Sachs Group Inc. economists put the risk of such a slump in the U.S. in the next year at 30%. A Bloomberg Economics model sees a 38% chance in the same period, with the risks building beyond that time frame. But for many it already feels like it’s here. Importers that rely on the U.S. Consumer to spend money are getting concerned. Liquidators and excess inventory buyers specialize in scooping up deals when businesses decide it's time to get rid of overstock and sell overstock inventory. If a business has too much dead inventory in the warehouse just sitting and not moving, it is very costly.
More than one-third of Americans believe the economy is now in a recession, according to a poll last month by CivicScience The worries among small business owners, consumers and others are illustrated by so-called Misery Indexes, which blend unemployment and inflation rates. The gauge for the US is already 12.2%, similar to levels witnessed at the start of the pandemic and in the wake of the 2008 financial crisis, During the crisis, companies were going out of business and doing anything possible to get rid of merchandise, clean out warehouses and shut down 3PL warehouses to eliminate warehouse expenses. During the financial crisis if a business had too much inventory in the warehouse, they were worried it wouldn't sell and they would get stuck with everything.
According to Bloomberg Economics.The UK is similarly elevated, and other measures echo that grim view. US consumer expectations as measured by the Conference Board have dropped to the lowest in almost a decade. Sentiment across OECD member countries has fallen for 11 straight months and hasn’t been this low since 2009. People are getting poorer,” said Ludovic Subran, chief economist at Allianz SE. “So this is not a recession, but it really feels and tastes like a recession.”The reason? Prices are soaring worldwide, particularly for essential foods and fuels, eroding the spending power of families. Central banks are responding to the inflation surge, but as they push up interest rates that turns the screw on those with debts. Workers are complaining their wages aren’t keeping up with the cost of living, a frustration that’s already led to strikes in some countries. Quite simply, people’s money is disappearing fast, and they’re worried it could get a lot worse. Remember, during the height of the China supply chain problems, shipping containers that used to cost $5,000 increased to $25,000. This meant the cost of goods soared, creating an environment where businesses were overloaded with merchandise and had to sell old stock or dead inventory to make room for new merchandise. Excess inventory and closeouts are costly if they just sit idle in the warehouse collecting dust. It is always better to liquidate inventory for anything you can get instead of letting old stock waste away on pallets in storage.
The big news in the economics world is a question: Are we already in a recession? While a future recession has been talked about for months, the issue is becoming more prominent with many economists raising their predictions of a recession occurring later this year or next. But some economic analysts are going one more step. They’re saying a recession is already here. Why are they saying this? Before giving an answer, some background on the definition of a recession is needed. The federal government actually “farms out” the dating of recessions to an economic think tank, the National Bureau of Economic Research (NBER). Despite its official-sounding name, the NBER is a private outfit. Its unique characteristic is that it has been around for over 100 years.NBER defines a recession as occurring when there is a “significant decline in economic activity” that lasts for “more than a few months.” This is a rather broad, non-specific definition that gives the NBER wide latitude in defining a recession. The NBER says it looks at several measures of the economy in concluding if a recession has occurred.
During recessions consumers spend less money in discount stores and closeout stores because they don't have discretionary income in their pocket. Discount stores like Dollar Tree, Big Lots, Ollies, etc, usually do well when times get tough as consumers cut back. If you have a company and are trying to get rid of extra inventory or shut down your 3PL warehouse, there are closeout buyers in every state who can help you. A simple Google search will turn up buyers. Try searching for closeouts, excess inventory buyers, sell old inventory, liquidators, overstock buyers, shut down 3PL warehouse, moving warehouse sell inventory, etc.
GDP is the monetary value of all goods and services produced for sale to “final users” in a specific period of time. Final users are those who consume closeout goods or services rather than reselling it to other liquidation companies. Basing GDP on final users avoids counting inputs multiple times as they move through the supply chain. For example, we wouldn’t want to count the value of the wood used in a home’s construction once when the tree is cut, a second time when the wood becomes lumber and a third time when the home is sold. Instead, the value of the wood is included in the home’s sale price. Also, in comparing GDP from one time period to the next, the dollar values are adjusted to remove the impact of general inflation. This eliminates the possibility of GDP rising just because prices are higher. Now let’s get back to the idea that a recession may already be upon us. The federal government has already released the data for GDP in the first quarter (January, February and March) of 2022. The GDP growth rate was negative for the nation as well as for most of the states, including North Carolina. For the nation, the “annualized” growth rate was -1.6%, and for North Carolina the “annualized” growth rate was -1.4%. Only four states — Massachusetts, Michigan, New Hampshire and Vermont — registered positive growth rates for GDP. Remember, it takes two consecutive quarters of negative growth in GDP to meet the “rule of thumb” of a recession. Official GDP numbers for the second quarter of 2022 won’t be released until the end of July. Still, there are forecasts available now for the second quarter rate. One of the most respected forecasts is from the Federal Reserve Bank of Atlanta. Their current forecast shows the second quarter GDP rate at -2.1%.
Merchandise USA is a closeout buyer and liquidation specialist in business since 1984. We buy all overstock inventory, discontinued merchandise, dead stock, old inventory, closeouts, obsolete inventory, surplus merchandise and slow moving inventory. If you are shutting down your 3PL warehouse, moving warehouses, or closing your Amazon FBA seller account, please call us today.