FROM TIME | AUGUST 1, 2011
The markets have been sinking steadily, fed on a diet of weak economic data — GDP growth in the second quarter came in at an anemic 1.3% — and debt ceiling deadlock (which, finally, appears to have been broken). Yet, in the past week, company after company has announced stellar earnings — none more stellar than Starbucks, Amazon and Expedia.
Last week, I wrote about how Apple has been thriving even as the overall economy has sputtered. The results from these three other companies shows just how wide the gap between companies and national economies has become, and they each demonstrate that in spite of what is happening on the national stage, there are profound areas of strength and signs of vibrancy in precisely the area widely thought to be hurting most: consumer spending.
Amazon reported a revenue increase of 51%, to just shy of $10 billion, which was its fastest growth in a decade. Think about that: 51% growth for a consumer goods online retailer during a quarter in which overall U.S. consumer spending was flat. That indicates that a considerable portion of Amazon’s strength came at the expense of other retailers, especially traditional brick-and-mortar stores like Sears, JCPenney, and the now-defunct bookseller Borders, which was deeply wounded by Amazon’s Kindle e-book reader.
A similar shift in how and where people spend helped online travel company Expedia, which also surprised investors with a strong quarter. It showed revenue growth of nearly 25%, surpassing $1 billion, with hotel bookings especially brisk. It also maintained very healthy margins, unlike Amazon, which has spent considerably to maintain growth. Part of Expedia’s strength is business travel, and it stands to reason that as businesses have been thriving, their travel budgets have been increasing. But Expedia also serves savvy individual travelers, and these have also been maintaining a healthy level of spending in an otherwise weak economy.
Finally, there is Starbucks. The assumption during the worst of the recession in early 2009 was that consumers would severely cut back on “affordable luxuries” such as those $4 lattes. On the contrary, Starbucks has proven that people will only cut affordable luxuries if they absolutely must — and that unless you have lost your job, you probably can still buy those $4 lattes. Starbucks has also been aggressively expanding internationally (and saw its international business grow 20% in the spring) and that has been a ballast. The company has also been able to manage rising commodity costs (coffee especially) and unlike most companies has been able to pass some of the costs on by raising prices.
Juxtapose these results with the just-released second quarter GDP report showing that overall consumer spending contracted by 0.1%. Clearly, these companies and hundreds of others are serving a consumer that is not being impacted by the combined effects of unemployment, foreclosures and debt that have so weighed on the nation. More important is that these consumers are likely to keep spending and shifting their spending toward online, affordable luxuries and new ways of conducting old business regardless of whether Washington manages to steer us away from recession or not.
For sure, another global economic meltdown, whether triggered by Washington gridlock on debt (which finally appears to have been broken) or an entirely unexpected event, would have a negative impact on everyone. But barring that, the results of these companies demonstrate emphatically that there is no single economy — no one story that fits all consumers. Our national data, however useful at times, fails to capture just how rich and complicated is the tapestry of economic activity, even in trying times.