Two Encouraging Trends

1. I’ve been seeing increased weekend traffic at retail since the middle of February. Shoppers are not exactly rushing to go home with bargains, but they are not just window-shipping either. The increased shopping activity is a sign of a sense of equilibrium among U.S. consumers.

2. There are anecdotes of more employers creating positions without filling them, so that the number of vacant positions is starting to resemble what you would see in a normal economy. Employers have vacancies because they are holding out, looking for workers with extra qualifications, or hoping to hire workers at 30 percent less than the going rate, or not going to the trouble of actively recruiting for the positions. Vacant positions are important in creating a foundation for economic expansion. If these businesses see their needs and funding increase, they could fill the vacant positions quickly by offering higher salaries, trying harder to recruit workers, or budgeting more for worker training for the workers they hire.

This Week in Bank Failures

Bank-bailout political parties fared very poorly in elections in Ireland and the United Kingdom. It wasn’t the bank bailouts themselves that voters so disagreed with, but the political inconsistencies between the bailouts and the drastic cuts in public service that came at the same time. U.K. voters have also been questioning the propriety of billions of pounds in unofficial tax breaks for banks and bank owners since last year.

A credit union failed today. Wisconsin Heights Credit Union had less than $1 million in assets when it was liquidated. Membership accounts have been transferred to CoVantage Credit Union.

Comparing U.S. Obesity to Canada

A new report released today by the Centers for Disease Control, “Adult Obesity Prevalence in Canada and the United States,” finds that obesity is more than one third higher in the United States than in Canada.

This conclusion probably surprises no one, given the way “U.S.” and “big” are rapidly becoming synonyms. But is this really a difference between two countries, or is it more of a regional difference, based on regional characteristics such as culture and climate? One way to consider this question is to compare provinces and states along the U.S.-Canada border. I looked specifically at the parts of the border where there are border towns, and compared the Canadian provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, and New Brunswick to the U.S. states of Washington, Montana, North Dakota, Minnesota, Michigan, New York, Vermont, and Maine. Restricting the comparison to the border states and provinces did not change it much. Comparing only the border states and provinces, obesity is still nearly one third higher in the United States than in Canada. The differences you find when you cross the border are more important than the regional differences within either country. That tells you that culinary traditions, which have considerable variation between cities and regions in the United States and Canada, but do not differ quite so much between the two countries, probably are not to blame for recent obesity trends.

There are also ethnic differences between the populations of the two countries, and these matter when it comes to obesity statistics. The study considered ethnic differences, but found that they did not account for much of the difference between the two countries. Comparing only the majority “non-Hispanic white” groups in the two countries, it still found a obesity rate that was nearly one third higher in the United States.

My guess is that the differences are mostly the result of national differences in food regulation, distribution, and advertising. If I had to look for causes, I would probably start by looking for ways to measure the way people view food advertising messages on television.

Obesity is increasing in most of the world, so one way to compare obesity rates is by comparing time periods. Other studies have done this, and one found that obesity rates in Canada are similar to obesity rates in the United States from 18 years earlier.

IPad 2’s Audio Power in Context

It was the demonstration of GarageBand on the iPad 2 that put Apple’s new tablet computer in context for me.

The ability to record eight channels of audio puts the new iPad in the same class as the 2002 Power Mac G4 that I bought in 2004 and took out of service just two months ago. But the iPad costs 1/5 as much, weighs 1/20 as much, and uses, I’m guessing, about 1/20 as much electric power. These are two products issued by the same company nine years apart, so it’s a valid way to measure how far we’ve come in computer technology over the last nine years.

The ability of the iPad to record pro audio will, I believe, change the way recordings are made, making music production even less dependent on the recording studio than it was already. There are already plenty of inexpensive devices that let you record audio remotely. The difference the iPad 2 will make, I believe, is the ability to add bits and pieces to a song that’s under production wherever you happen to meet musicians, without the need to plan ahead. Traditionally, if you play a song you’re working on for a musician and they have an idea for something to add to it, you would have to arrange an appointment for them at a recording studio. These days, I suppose, you might arrange for them to e-mail a track to you. That’s impressive enough, but if you have the iPad 2 along, you can record the new track right then and there without having to make arrangements to do it later. This is just one example of the way technology can make work more spontaneous and less dependent on institutional structure.

Restaurants Raising Prices

Some of the large restaurant chains have announced that they have “successfully” raised their prices since December — that is, they raised prices, and customers are still buying. Others, including McDonald’s, have plans to phase in price increases a few items at a time over the course of the year. A few economists and analysts are pointing to these stories and talking about the return of pricing power. Restaurants and retailers will be able to raise prices without driving their customers away this year, they say. But are restaurants actually getting away with price increases? It is too soon to say.

Since 2009, it has been very hard to sell consumers anything at a new higher price. Customers look at the products and their higher prices but mostly don’t buy, retailers have been reporting. When a 15 percent price increase can create a 75 decrease in sales volume, retailers have been extremely reluctant to raise the price of any prominent product. This is what it means to not have pricing power. This is why most restaurants have prices that are the same as they were in 2007, or just 10 percent higher, even though the restaurants’ food costs have gone up more than 20 percent.

With food prices expected to increase another 10 percent this year, especially for high-profile ingredients like meat, bread, cheese, and coffee, restaurants will probably have to raise prices. They can hope that with consumers becoming more optimistic, their customers will just pay the higher prices. My expectation, though, is that restaurant customers will adjust to higher prices by going to those restaurants less often. Higher gasoline prices will also keep customers at home more often. In my opinion, most restaurants will do better to decrease portion sizes again than to try to raise prices.

There is a reason to be skeptical about a report of a successful restaurant menu price increase coming just a few months after the price increase went into effect. Only about 1 in 500 customers will actually walk out of a restaurant because of a 10 percent price increase. Customers may visit the restaurant several more times before they eventually say, “Gee, this place is pretty expensive, isn’t it?” And then, a restaurant that people had visited regularly may become one that they go to only every few years.

When a group of people are picking a restaurant to go to, the slightest disinclination from anyone in the group can be enough to send the group elsewhere. It doesn’t take a complete sentence to rule out a restaurant that’s been suggested. People may not even consciously realize that they’ve stopped going to a restaurant until a year or two has gone by. As one example of this effect, there is a restaurant I went to late in 2009, and I noticed that they had switched to a lower grade of salad dressing and no longer included rolls in the salad bar. I think about the restaurant 18 months later, and I say, “Gee, I never did go back, did I?” When people are loyal customers, though, they may go back to a restaurant several more times before they realize, with some regret, that their favorite restaurant isn’t so great anymore.

People who visit a restaurant once every two months consider themselves regular customers. You can see how there can be such a delayed reaction to changes at a restaurant. If a restaurant raises prices and sees only a slight decline in traffic a month or two later, that is too soon to consider the price increase a success.

Looking at the restaurant business this year, I am more concerned about gasoline prices than food prices. The stiff resistance to gasoline prices that hit around $4.15 per gallon in 2008 may hit quicker this year, perhaps when prices approach $3.80 per gallon, as they surely will before we get to the summer driving season. At some point, the higher gasoline prices will get consumers to stay home much more often, perhaps reducing their retail trips by 10 to 15 percent. Customers won’t even see the prices on the restaurant menu if the price of gasoline keeps them at home. But if they spend an extra $2 in fuel to get to a restaurant only to arrive and find that the restaurant is also charging them $3 more than before, it’s a double whammy that makes each of the price increases more visible than it would be by itself.

There is another point to consider, and that is the switch from credit cards to debit cards for shopping. This has made upscale consumers, who are the ones more likely to go to restaurants, more price-sensitive. One of the strangest trends in retail late in 2010 was the influx of millionaires eating at McDonald’s, which the restaurant chain says accounted for most of its U.S. traffic growth last year. The story, according to CNNMoney, is that wealthy consumers are saving up to buy things like Jimmy Choos. That implies, of course, that they’re not just taking their credit card and going to the mall to go shopping. When you are saving up for something, it makes you more conscious of all prices, including restaurant prices. Even without price increases, I believe this will be the year when the comment, “We should eat at home a little more often,” starts to turn into a reality for many consumers. Restaurants will have to increase some prices, and that may make the change happen a little faster.