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Policy: Economy

What Dollar Tree's purchase of Family Dollar says about the U.S. economy

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Politics,PennAve,Joseph Lawler,Economy,Spending,Income Inequality,Retail,Consumer Confidence

It seems a deal to define an era: Dollar Tree announced on Tuesday it was spending roughly $8.5 billion to acquire a struggling competitor, Family Dollar, creating a low-end behemoth with 13,000 stores and $18 billion in sales.

Amid a slow recovery for poor Americans who are also facing cuts to federal programs like food stamps and unemployment benefits, the creation of a mega-dollar store might be interpreted as a grim sign of diminished consumer expectations. But the reality is that the economic outlook has improved for poor Americans as well as rich Americans, and the Dollar Tree deal represents the normal jockeying of businesses competing for sales.

It’s nearly impossible to attribute shifts in retail patterns to any one cause, such as cuts in government programs, said National Retail Federation chief economist Jack Kleinhenz. “I think it’s difficult sometimes to pinpoint a cause and effect and say ‘this must be related to some policy or market shift,’ ” Kleinhenz told the Washington Examiner.

Two-thirds of Americans shop at dollar stores, according to Todd Hale, a vice president for consumer and shopper insights at Nielsen, up from 60 percent in 2001. Only half frequent “warehouse club” retailers like Sam’s Club, while three-quarters shop at “supercenters” like Walmart.

Dollar stores have grown rapidly — the top three chains have added 10,000 stores in the past decade to 24,000 total, according to the Wall Street Journal — because they’re attracting more consumers, not because the economy is hollowing out the middle class and forcing low-income Americans to seek bargain basement prices.

Consumer sentiment is up across all income brackets, including the lowest, according to the Conference Board.



While those earning more than $50,000 have improved their outlooks the most, sentiment is up among everyone, including those earning less than $15,000.

Only a fifth of dollar store shoppers have incomes below $25,000, according to Deloitte research.

Consumer spending has tracked, roughly, with sentiment. Examining the Bureau of Labor Statistics’ Consumer Expenditures Survey, economists Bruce Meyer of the University of Chicago and James X. Sullivan of the University of Notre Dame found that consumer spending grew at roughly the same pace among all income brackets, setting aside the ultra-wealthy, during the early years of the recovery that began in 2009.

Consumption spending has grown more equally than incomes over the course of the recovery largely because of safety net programs such as food stamps and tax credits that have added to the purchasing power of low-income Americans.

Kleinhenz pointed to an April analysis from the Federal Reserve Bank of Minneapolis that found that “the redistributive scope and impact of government tax and transfer policies have increased to historic highs” in the wake of the recession, limiting inequality in disposable income. The recovery from the deep 1980-1982 recession, the study concluded, was significantly more unequal.

Taking safety net provisions into consideration, Manhattan Institute scholar Scott Winship found, middle-class and poor incomes had recovered to pre-recession highs by 2011 and have grown since then.

In other words, the creation of the new Dollar Tree-Family Dollar company is a sign of a business as usual amid America's slow, grinding recovery.

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