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Holiday Spending: Scrooge-Like or Better Than Expected?Retailers typically count on holiday spending for up to 50% of their profits each year.1 But with recent reports about falling consumer confidence, economists wonder whether this holiday will be as jolly for retailers as past years have been.Weighed down by economic uncertainty, questions about corporate integrity, and the ongoing threat of terrorism, consumers are expected to spend only 3 to 4 percent more this season than they did last year.2 Yet a small group of contrarians has suggested that holiday sales may surprise economists and market watchers, as consumers draw momentum from a stock market that has moved higher in recent weeks. Scrooge Economics Consumer spending has largely kept the economic recovery moving during the past few years, despite worries about the stock market and threats to homeland security. But prolonged uncertainty may be wearing on shoppers’ capacity or compulsion to spend. Although retail sales jumped somewhat in October as a result of cold winter weather, few economists expect that growth spurt to be sustainable.3 During that same month, consumer confidence — which some see as a key indicator of future spending — plunged for the fifth straight month to a near 10-year low.4 Many attribute the loss in confidence to worries over Iraq, uncertainty on Wall Street, and the continuing “jobless” recovery. Since June 2001, nearly 1.6 million Americans working in the private sector have lost their jobs.5 For families affected by these labor cutbacks, holiday spending may take a back seat to more pressing concerns. And yet there are those who argue that October’s skepticism stemmed from issues that have since been resolved, such as the West Coast port closures and sniper attacks in the Washington D.C. area. Port Closure Problems Linger Even if consumers are ready to shop, backlogs caused by the West Coast port closures could put major kinks in the supply chain for toy stores, electronics shops, and clothiers. Although it’s been weeks since the ports reopened, shipments of holiday merchandise have been delayed by as much as two weeks — nearly half of the critical spending season.6 Goods that arrive after the holiday rush could become excess inventory in January that must be unloaded at a steep discount. Though this might be a boon to shoppers, retail sales could suffer. So far, 2002 has produced few holiday shopping crazes, but should a late-breaking trend develop, retailers may not have enough time to react. Port and railway backlogs mean that goods can no longer be ordered and shipped overnight, so large inventories of “must haves” may not arrive before the holidays are over. Despite the pessimism engendered by recent indicators, consumers may yet surprise the experts as they have done in the past. The Federal Reserve’s lowering of key interest rates in early November may help encourage consumers to rebel against the prevailing skepticism and open up their purse strings. The only question is whether they will do so before the critical shopping season is over. 1) CNNMoney, October 29, 2002 2) CBS MarketWatch, October 29, 2002 3) The Wall Street Journal, November 7, 2002 4) USA Today, October 29, 2002 5) Haver Analytics, 2002 6) The Wall Street Journal, October 21, 2002 © 2002 Emerald Publications
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