The economy writ Short, Tall, Grande

[Omaha Steve]

http://www.philly.com/philly/hp/news_update/20090215_The_economy_writ_Short__Tall__Grande.html

Posted on Sun, Feb. 15, 2009

The economy writ Short, Tall, Grande
To forecast the U.S. economy, look to the rises and falls of Starbucks. Why? If you think about what the coffee chain sells, it starts to make sense.

In the middle of 2006, Starbucks' stock price peaked at $39.63 a share. Everywhere you looked, a new Starbucks was opening, an average of six new stores a day. The company had 12,241 shops in the United States, with plans to expand to 40,000 locations worldwide. Citing increased demand from less-affluent customers, chief executive officer Howard Schultz told investors: "We don't believe that we are even 50 percent through to the unique opportunity we have."

Things have changed.

At the end of January, Starbucks Corp. announced its second round of store closings, bringing the number of U.S. stores it will shutter to 800. The company's revenue has shrunk. Its net income for 2008 declined 54 percent. Its first-quarter profit from 2009 is down 69 percent. Today, Starbucks' stock price hovers around $9.50.

Why should you care? Because Starbucks is a leading indicator for our broader economy.

It's not a coincidence that Starbucks reached its peak at the precise height of the housing boom - the inflation-adjusted price of housing in the United States topped out in 2006, Starbucks' last year of living high on the bean.

Plot Starbucks' stock price against the Dow Jones industrial average and you see that over the last four years, Starbucks has anticipated the market at nearly every turn. Starbucks' stock started heading north in 2005, five months before the rest of the market started climbing. Starbucks began its decline in late 2006, just as the outlines of the recession were emerging on the horizon. And Starbucks' stock dropped through the floor nine months before the Lehman Bros. Holdings Inc. crash sent the rest the market tumbling.

FULL story at link.