Every year, TV coverage of the holiday shopping kickoff takes on the sort of breathless urgency typically reserved for hurricanes or car chases. We’re told that fate of the republic hinges on the contents of our shopping bags. Historically, we’ve obliged by overstuffing them: Bankruptcy filings tend to surge early each year as consumers struggle to pay their post-Christmas credit card bills. But if one of this season’s hottest gifts—an $8, battery-operated toy hamster—is any indication, we seem to be scaling back a bit this year. And that might be all right, since much of the conventional wisdom linking holiday spending and the health of our economy turns out to have been exaggerated.
Most retail spending occurs around the holidays.
With so much attention focused on shopping and sales during the holidays, people often assume that the vast majority of our spending takes place around this time of year. But over the past decade, only about 19 percent of each year’s retail sales were in November and December — just a bit higher than the 17 percent of total days in a year that fall in those two months. Of course, the holiday season’s importance varies by type of store, with those that sell nonessential goods more dependent on holiday cheer (and the spending it inspires). Toy stores and jewelry shops rack up about a third of their sales in November and December, whereas supermarkets and hardware stores see a much smaller blip in demand.
The winter holidays do beat out other much-hyped shopping seasons. For example, while sales at apparel and department stores tend to be stronger during the back-to-school season than they are early in the year, they’re a good deal more substantial in the weeks leading up to Christmas.
Sales on Black Friday make or break the holiday shopping season.
In shopping circles, the day after Thanksgiving has been dubbed Black Friday. Some attribute the nickname to the flood of traffic on the road and some to the burden the day imposes on store clerks, but most point to the association between black ink and profitability. (Dismayed by the commercialization of Thanksgiving weekend, some people even advocate reinventing Friday as Buy Nothing Day.)
According to the International Council of Shopping Centers, Black Friday regularly sees more shoppers than other days in late November and early December. But it is just one of many busy shopping days. The consulting firm Accenture reports that 26 percent of consumers planned to do the bulk of their holiday shopping before Thanksgiving this year. And plenty of people leave things to the last moment: The Saturday before Christmas was, until recent years, the busiest shopping day annually, and it should remain one of the leading days this year.
While Black Friday often sets the pace for the rest of the holiday season, there have been years when it didn’t. For example, in 2006, industry reports showed a strong 6 percent increase in sales compared with Black Friday 2005, but statistics for the entire season ultimately revealed a gain of less than 2 percent relative to the previous year. Although one would expect Black Friday sales to reflect the willingness and wherewithal of consumers to spend, factors such as the weather and the number of weeks between Thanksgiving and Christmas in a given year complicate the picture. Economic conditions this year will make this weekend’s spending especially hard to interpret. The numbers could turn out to be lower than those for the rest of the season — perhaps people are uncertain about their job security or (in some income brackets) the size of their bonuses, and will wait until closer to Christmas to spend. Or sales may turn out to be stronger this weekend than in the weeks ahead, because Black Friday bargains are particularly appealing when budgets are stretched.
This year’s holiday sales will tell us whether the economic recovery is real.
Retail sales during last year’s holiday season were pretty much abysmal, with what economists call the “core” category (which excludes spending on cars) falling 8 percent compared with the 2007 holidays. While most analysts don’t think we will see that kind of decline this year, they aren’t expecting a blockbuster season. The consensus view is that consumer spending will rise only slowly in coming quarters, held back by weak labor markets, high consumer uncertainty and the big hit that households have taken to the value of their homes and to the value of their stocks and mutual funds, including those in their retirement portfolios.
Although consumer spending accounts for about 70 percent of U.S. economic output, it has rarely led the way out of past economic downturns. Such spending doesn’t usually increase until income and overall economic activity do. Home construction and business investment are typically more likely than shopping to spark recoveries — although these sectors aren’t poised for a particularly vigorous comeback, either.
Online shopping has come to dominate holiday sales.
The rise of electronic commerce has spawned talk of a counterpart to Black Friday: Cyber Monday. The idea is that when people return to their normal activities the Monday after Thanksgiving, they find time to surf the Web and order some presents. Anecdotal reports from online merchants confirm that such behavior has increased in recent years. And according to Google Trends, the number of searches for “Cyber Monday” in late November 2008 was about 10 times the number of searches three years earlier.
The hoopla over electronic shopping notwithstanding, online sales made up less than 4 percent of fourth-quarter retail sales last year. Although this represents a big increase since earlier this decade, online shopping remains a modest part of overall spending.
From an economist’s perspective, cash is the best gift.
Economists are known for arguing that giving your loved ones cold cash is better than giving them presents because people can spend the money on items of their own choosing. In “The Deadweight Loss of Christmas” — a famous article published in the American Economic Review in 1993 — Joel Waldfogel, a professor at the University of Pennsylvania’s Wharton School, presented evidence supporting this point. He’s now updated and expanded the argument in a book called “Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays.” (Waldfogel may be arguing against gifts, but with this book, he’s also ready to profit from them: “Scroogenomics” is packaged as the sort of small, stocking-stuffer-ready book sold next to bookstore cash registers.)
Waldfogel surveyed college students and found that they valued the Christmas gifts they received at between 75 and 90 percent of their original price. Consider fruitcake: Is it worth as much to you when you receive it as it cost the giver to make or buy it? A strict interpretation of Waldfogel’s results implies that the difference between the price of a gift and the value its recipient attaches to it — which can add up to tens of billions of dollars a year nationally — is essentially wasted money.
But this logic misses the point of exchanging presents. Gifts have more than monetary worth; the effort and care involved in their selection gives them sentimental meaning. If what mattered most were their cash value, we wouldn’t exchange presents at all — we’d simply let whoever was going to give the more expensive gift pay the net difference to the other person. But even most economists will be found at the mall sometime in the coming weeks.