11/09/2007 04:21 pm ET | Updated May 25, 2011

Carbon Christmas

The old parental threat was to place a lump of coal in the stocking of poorly behaved children on Christmas. This year, it is starting to look like the lucky ones will get the coal- probably safer than many popular toys anyway. Coal, like most anything you can burn to generate energy, is doing well. Malls, department stores and discounters are not doing well. Thursday November 08, saw the October news from Wal-Mart, Target and the same-store-sales index release. Same store sales measure the total receipts in stores that have been open for a minimum of one year. Same store sales growth was not pretty. Wal-Mart, by far the largest retailer in the world, released disappointing numbers. Wal-Mart has heavily promoted and began its Christmas blitz early. This resulted in .4% October same store sales growth; below the very modest estimated growth of 1.1%. Target did well but, is still recovering from a nasty September. Over all, the widely watched and important same store sales index was up a very weak 1.6% in October. That makes October 2007 the worst for sales growth in more than a decade. Thompson Financial has reported that a majority of retailers are reporting disappointing results so for this quarter. Thus, as an industry, retail appears to be in trouble.

Why I am writing to you today about stores in trouble and Christmas? Because American stores can only do as well as Americans can buy goods and services. People pull out all the stops for Christmas and leading chains get and keep attention for their best-in-class ability to attract shoppers and get them to spend. As a nation we love to spend. We only slow -- let alone stop -- when there is no way to get access to more money- or even as much as before. Leading surveys of consumer confidence underline these retail results . It looks like a carbon- coal lump- Christmas might be in store?

At this point, a national economic pattern is emerging. The public is scared, borrowing what and where it can. Borrowing was still growing faster than the economy in the third quarter, but had slowed. Federal Reserve data show consumers unable to borrow against their homes and turning to credit cards in large numbers. This means increasingly cash-strapped folks are turning to more expensive and shorter term loans. This indicates high and rising stress as households struggle to make payments and take on increasingly costly debt. Many of us are decreasingly able to spend and increasingly nervous about the near term future. The US Dollar has been losing value rather quickly and very steadily. At the same time there are inflation pressures building from rapidly rising food and energy costs. These seem to be the real trends in the economy. It is slowing, prices are rising and we feel insecure. All that talk, spending and drama over security and our real security has fallen far and fast. Real security is job security, income security, security of health care and rational optimism about the future. Impending economic trouble, housing turmoil and rising debt are real insecurity.

Our view of the economy has been obscured by positive government economic statistics and reassurances. Great numbers on GDP, jobs, productivity and Federal Reserve rescue plans blocked recognition of coming trouble. Pundits, officialdom and media heavyweights are trying to reassure. Some of this is fair difference of opinion, some of it is disingenuous and some of it is just plain spin. Vice President Cheney likes to act sure of America's strong economy and bright future. It has been established that Lynn Cheney and he have invested to protect assets by positioning their considerable wealth against inflation, US recession and betting on European growth . This would be an example of disingenuous reassurance?

Now back to our main story. It seems increasingly often that oddities, falling dollars and underestimates of price increase created confusion while the economy weakened. We were not fooled entirely but it was a difficult slog. Going forward we will need clarity of view to negotiate challenges. This means being honest. The US consumer is weakening and is in store for harder-to-come-by credit conditions. It will drag on folks how much they have borrowed over the last several years. This will make things tough in many houses. It already has in the hundreds of thousands of homes that have entered foreclosure this year. Speaking of housing, it will stay down for a while- in terms of the general trend. Over the next 9 months many Americans will see their mortgages reset. If the past is any indication, this will create hardship for many. Our depressed dollar and further pressure on asset prices in the US will create many changes. Foreign firms and individuals will be shopping here as our prices are now exciting to them. Our prices will not be so exciting for us. Energy, food and many other prices will stay above where they have been in the recent past. Imports rise in cost as our currency falls. Another way to say all this is that a recession is here -- probably has been for a few months. This recession will shape fortunes, bend dreams and shake the political certainties of the recent past.

Economic weakness is the sleeper issue in the 2008 Presidential election. It has been awoken by the business cycle, debt levels and political inaction. We need to watch for coal in Christmas stockings to feel out economic change.