I hope everyone had a great holiday. I certainly did, as my sister and her family hosted us for a wonderful Thanksgiving dinner and very fun weekend. Thank you, Beth and Kevin, and thank you, Jake, Jesse, and Max.
Retailers apparently didn’t have as good a time. Today’s headlines are largely about sales being down for the weekend as compared with last year—with the proviso that they’re expected to be up for the season as a whole.
This seems reasonable, if you take a detailed look at a couple of factors. First is the much larger number of sales, starting much earlier. On top of Black Friday, we now have sales on Thanksgiving itself, online sales, Cyber Monday, and everything else. Other things being equal, of course, sales over any given period may be less, even as total sales growth turns out healthy.
The other, macro factors here are also more supportive. As I’ve mentioned before, consumer income has increased more than consumer spending over the past couple of months, so there is the ability to spend more. Consumer borrowing is also starting to tick up, which should provide more support. Consumer confidence just reported a tick up as well, after a multiweek slide caused by the government shutdown. Confidence recovery should aid in increasing spending.
There are, however, reasons to worry. Much of the gains have come to the higher-income cohorts, with less-affluent consumers continuing to be squeezed, which is hurting sales at Walmart and Target. Those consumers substantially outnumber more affluent consumers, which could result in a decrease overall, even as affluent shoppers continue to spend.
Ongoing improvement in the employment numbers should help ameliorate this, as the lower-income cohorts have disproportionately higher unemployment rates. Faster wage growth, which is starting to accelerate, should help as well.
Nonetheless, the possibility of a disappointing holiday season, from an economic perspective, remains. While overall sales figures should still come in higher, the differentials in the employment recovery and wage gains stand to benefit the affluent, and the stores that cater to them, more than the less affluent.
The other reality is that, even if sales increase overall, the profits for retailers will be eroded by increasing competition. The blast of sales starting in early November, and even before, reflects that retailers have to fight ever harder for each consumer dollar—and that profits may suffer accordingly.
As we enter the holiday season, it seems likely that consumers will continue to spend as much, or more, than they can afford, but that it will be a series of more carefully considered purchases, with a greater focus on prices and sales. Retailers may end the season less cheerful than shoppers.