Will Retail Have a Happy Holiday Season?

 | Dec 07, 2011 | 5:00 PM EST
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Now that Black Friday results have been tabulated, what might we expect from U.S. consumers going forward? Let's take a look at recent consumer behavior and, importantly, try to gauge a sense of how consumers' attitudes might affect spending for the rest of the holiday season. For that, we turn to surveys. The big caveat with any survey -- consumer or otherwise -- is that what people say and what they do are often two very different things.

Before we get to what consumers are saying, let's look at what they did during the Black Friday weekend. The National Retail Federation (NRF) published its estimate of sales and traffic for the Black Friday weekend, reporting that consumers spent a record $52 billion, with a record 226 million shoppers visiting stores and websites over the weekend, up from 212 million last year. Those who bought items spent an average of $398.62 per shopper vs. $365.34 in 2010, including $150.53 on the web.

One question I have is to what extent these patterns are related to promotional events and a newfound pleasure of shopping at 3:00 a.m. Also, will these trends continue? There's not much in the way of aggregate, macro-level data that can tell us what promotions were like across all retailers, nor is there a quantifiable means of determining the effect of discounts on spending, but it seems as though promotional events are luring shoppers in.

One metric in the NRF's press release that caught my eye is the trend for shoppers to be in stores at what I regard as bizarre hours. This year, 24.4% of Black Friday shoppers were at stores by midnight compared to 9.5% in 2010 and 3.3% in 2009. Since I don't think that shoppers' sleep habits changed much over these years, what I might surmise is that the promotional events create the difference, whether it's the hours of operations or the prices of goods. Various media reports corroborate this theme that holiday shoppers expect -- and even demand -- discounts. Thus, my takeaway from these data is that much of the sales increase during the Black Friday weekend was promotional.

Still, consumers are saying that they are in a somewhat better mood than they had been in recent months. Consumer confidence, as published by the Conference Board, jumped by a notable amount to 56.0 in November from 40.9 in October. While this is good news, bear in mind that the average level for consumer confidence has been in the 90-to-100 range for much of its history since 1985. The expectations component, which tends to be more correlated, statistically speaking, to spending, notched an equally impressive gain to 67.8 from 50.0. Consumers are feeling better about their income prospects, jobs and spending patterns, with the important caveat that these metrics appear good, relative to recent months, but they are still in recessionary terrain.

Other metrics, though, don't show that consumers are feeling better. Bloomberg's Consumer Comfort measure is still in recessionary terrain, with its headline measure printing -50.2. The index, which began in December 1985, has averaged -46.7 this year compared with -45.7 for all of 2010, and -47.9 in 2009, the year the recession ended. The measure of Americans' views on the current state of the economy worsened to
-88.5 last week from -87.2 in the prior period. The buying climate index fell to -49.4 from -48.8. This is a diffusion index, so positive readings indicate overall comfort, while negative readings indicate pessimism.

Bankrate.com attempted to assess more specifically how consumers' attitudes will affect holiday shopping. Their own survey showed that 42% of Americans plan to spend less this holiday season than they did last year, while only 7% plan to spend more, and the rest are planning to spend the same amount. Feelings of job security hit a new low, and more Americans reported having a lower net worth than having a higher net worth vs. a year ago.

This metric of feelings of low level job security dragged down Bankrate's Financial Security Index for the second month in a row to 92.5. This is the second-lowest reading of the year, just slightly above August's level of 92.3. Any reading below 100 indicates decreasing levels of financial security compared to 12 months earlier.

Taken together, these data suggest that, while consumers are not quite happy, they do seem to want to shop – but, only when enticed to do so. I don't think the poor confidence readings will cause consumers to retrench, but I do think they will limit their spending growth to income gains. We learned in the payroll report that hourly earnings fell by 0.1% in November, and the savings rate has already fallen to a very low 3.5% (long-term historical averages are 8% to 10%).

Thus, I do not think that we will have a robust remainder of the holiday shopping season, as, perhaps, those who wanted to shop did so during the Black Friday events. Also, I question whether consumers, in aggregate, will turn to credit or decrease their savings to fund more spending this year.

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