If you were to wander around the fashionable areas of New York City this month you'd be hard pushed to see much sign of recession.
The hotel I stayed in over the weekend, the Tribeca Grand, somehow gets away with charging $300 plus a night for tiny and very dark rooms painted in odd yellow grey and brown stripes with no baths; the goods in even the average looking boutiques seem absurdly over priced even factoring in the weak dollar (a pink coat for a 2 year old at $800 anyone?); and the streets are crowded with meandering people.
But look a little closer and you will see that most these people are not shoppers. And they're not American either. They're tourists getting a kick out of the fact that they got a round trip ticket from London to JFK plus 3 nights in a boutique hotel off lastminute.com for £400.
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Buy $700 shoes? I'm afraid it doesn't matter how many free plane tickets the airlines and tourist board give way to lady journalists to encourage them to write stories about the relative prices of Jimmy Choos and jeans, no one's buying: on my flight home most people were more nursing hangovers (tequila and beer really are cheap in New York) than priding themselves on filling up over sized suitcases with cheap shopping.
More bad news for the US
Things weren't looking that much better uptown, where, while people were shopping, they were doing so only for discounts: the big discount retailers opened at 4am with amazing offers only to watch them being hoovered up by punters who then moved on to the next shop and the next mega bargain.
This might push volumes up (8.3% in the weekend after Thanksgiving as it turned out) but it really doesn't do much for profits. It is, said a mournful analyst to the New York Times, going to be a "trade down Christmas."
The news from the US just keeps getting worse. House prices are still falling fast, while repossessions are rising fast and consumer confidence as a direct result of the housing bust - is at its lowest level for 15 years.
At the same time it is perfectly clear that the fall out from the sub prime mess has only just begun. The write downs continue; the all important interbank lending markets are seizing up again (as nervous banks refuse to lend each other money); loan rates are rising for consumers be they sub prime or not; and the high oil price is hardly helping to ease anyone's pain.
Finally, despite the endlessly optimistic mutterings we have heard from analysts over the last six months, there is now irrefutable evidence that all this has hit the US economy: according to figures from Standard & Poor's operating earnings per share have fallen over 8% from a year ago.
Christmas rally or Christmas rout?
I've looked for a silver lining in all this but I'm afraid there isn't one. Assuming that the US isn't in recession already (we can only really see these things in hindsight) I can't see any way that it won't be by 2008.
With this in mind it might be worth wondering why stock markets haven't fallen further: with the underlying situation bad and getting worse it makes no sense for the S&P to be at much the same level as it was at the beginning of 2007 when no one had heard of sub prime or CDOs, oil was cheap, house prices were wobbling not crashing and corporate profits were still rising.
Much of the market is still expecting a huge end of year rally. I can't for the life of me understand why. More likely is an end of year rout.
First published in The Evening Standard
