Why Video Games Are an Excellent Economic Indicator

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AP/EA Sports

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Video games and video game consoles are sold across a broad spectrum of consumers whether they are measured by income or region. The games are also inexpensive enough so that they should be a reasonable proxy for consumer discretionary spending.

The signals from the video game industry in April were troubling. Sales of games dropped 23% and game console sales were down over 40%, according to research firm NPD. (See pictures of the history of video games.)

Nintendo, which has ruled the market in consoles for two years had a 43% drop in sales of its popular Wii model from March to April, selling only 340,00 units. Sales of Microsoft's (MSFT) Xbox 360 dropped 47% from March. (Read: "Out of the X Box.")

The news for Sony (SNE), which just posted a $1 billion loss for its last fiscal year and projected another one for this year, was especially bad. Sales of the PS3 were down 42% from March to only 127,000 units. If Sony needs PS3 sales to help revive its earnings fortunes, it is in real trouble.

The slide in console sales is so extreme that it is a clear sign that sales of consumer electronics are in a flat spin. When people cannot spend $300 on a console or $50 on a game which can be used for hours and played over and over again, the money for discretionary spending has dried up.

Douglas A. McIntyre

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