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Amazon's Holiday Blahs May Be Contagious

Katie Benner is a Bloomberg View columnist who writes about technology, innovation, and the cult and culture of Silicon Valley. She lives in San Francisco.
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Amazon investors were given a lot of bad data points to choose from in yesterday's quarterly report. The net loss of $437 million is more than 10 times larger than last year’s loss. Revenue growth missed forecasts. The Firefly phone was a flop. And the cloud computing division, Amazon Web Services grew, but only after the company slashed prices.

Amazon’s past looked bad, and the future looked worse. The company warned that revenue next quarter would be a disappointment too.  Analysts had predicted 20 percent revenue growth for the period, which includes the big holiday shopping season. Amazon said that it would actually grow between 7 percent and 18 percent, preparing Wall Street for anything from a near-miss to an utter disaster.

The results, of course, will cause some sleepless nights in Seattle, as executives with stock-based compensation wonder when and how the 30 percent decline in the share price this year will end.

And they might cause worry in Washington and Wall Street too, not about Amazon per se, but about whether the online retailer's predictions for the next quarter indicate that the post-recession recovery isn’t as strong as some topline numbers imply. 

Amazon isn’t the only important retail company to cut forecasts. Walmart, the largest retailer in the country, recently cut its growth estimates for the year basically in half, amid worries about the health of the economy, according to a New York Times report.

Last month, unemployment dropped to 5.9 percent, its lowest level in six years; but some economists said that the number was misleading. 

“There are still too many people who want jobs but cannot find them, too many who are working part-time but would prefer full-time work,” Federal Reserve Chairman Janet Yellen said in September, adding that the trend was keeping wages low.

This month, Yellen expressed grave concern over the recent rise wealth inequality, the greatest since the 19th century. “It is appropriate to ask whether this trend is compatible with values rooted in our nation’s history,” she said.

Consumer sentiment has improved since the recession, but it’s still lower than it was before the financial crisis, and the Census Bureau shows that median household incomes have stagnated in about three quarters of the states.

As Goldman Sachs noted in a recent report, “Seven years after the start of the crisis, growth continues to lag previous recoveries quite sharply … even in the U.S. (which has been out of recession for five years), growth is tracking below equivalent points in past economic recoveries.”

There are some groups that think this holiday season will be better than last. Consulting firm Deloitte says that retail sales should grow between 4 percent and 5 percent this season, slightly higher than 2.8 percent last year.  Other retailers, such as Target and Kohl’s, are predicting a lot of store traffic during the holidays, and they’re ramping up their hiring accordingly. Of course the topline numbers can smooth out pockets of wealth and poverty; and the differing fortunes of retailers often reflect trends in the differing fortunes of different parts of the consumer economy.

Amazon’s recent quarter has raised all sorts of questions that the retailer has to answer. Should it slow its expansion strategy and try to make money? What’s the endgame for the its aggressive investment strategy? How many failures, such as the Fire, can the company weather?

And it highlighted a problem that no company can figure out. How strong is the U.S. economy, who does it benefit, and how ready and able are consumers to put money back into the system?

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the editor on this story:
Tobin Harshaw at tharshaw@bloomberg.net