The Ghost Of Christmas Yet To Come

The battle cries of retailers as the approach this holiday season is “may a fool and his money soon be parted.” Unfortunately, there are fewer fools than there were two years ago when the Christmas trade was robust and much less money. The shop keepers on the parapets are going to be disappointed.

Economists are looking for the next important sure sign that either the economy is actually expanding or that the rebound is a brief illusion. There will be a number of pieces of data on trade, manufacturing, housing, and, most importantly, employment between now and the end of the year. But, the best catchall is holiday retail sales.
Revenue taken in across the retail industry in the last two months of 2008 was about $98 billion and for many companies in the sector that period is 35% to 40% of their annual totals. While there may be a better proxy for consumer spending, employment expectations, and credit availability, it does not come to mind.

Several analysts used the poor results of last year’s holiday season to predict thousands of store closings. Those predictions turned out to be true and the lay-offs that were part of this process helped fuel the tremendous unemployment numbers in the first quarter of 2009. The effects of this year’s shopping activity are not likely to be much different. More retailers will survive a bad season because the weakest ones were weeded out last year. Those that remain probably have better access to capital. Whether a second round of disappointing retail traffic will be an employment disaster in the industry can’t be predicted. What can be predicted is that another sharp drop in holiday retail sales will take the momentum out of any GDP recovery because consumer spending is so critical to US economic growth.

The general economy may not be the only reason the holidays will be hard this year. Christmas came early for many shoppers. “Back to school” price cuts at retailers hoping to get business in August and “cash for clunkers” car sales and knock-offs of the program that were used to sell everything from appliances to roof shingles pulled some portion of the consumer activity that would have occurred in the fourth quarter forward into the third. Those shoppers who had a modest amount of money to spend this year may have already spent it.

A great deal of the information needed to predict how this holiday season will go is already in. Truck companies and railroads are already shipping inventory for the fourth quarter to stores. Reuters quotes the head of marketing at big railroad company Burlington Northern Santa Fe as saying “We would normally in the past have seen significant upticks by now. But we’re not seeing any big uptick in volumes at all. With the consumer basically on the sidelines that doesn’t portend a very robust upcoming holiday.”

So, the holiday season is already a lost cause and it is only mid-September.

Most experts on the economy are optimistic about the last half of this year which is a hard position to defend unless the positive comparison is to the first half. The pace of rising unemployment may slow and there have already been ticks up in some housing and manufacturing numbers, but they are from a base that has fallen to unprecedented lows over the last year. Quarterly comparisons to the same periods last year are essentially meaningless. GDP will have to be rising at an annual rate of 5% or 6% and unemployment will have to be well below 8% for any measurements made to some dates in the recent past to be meaningful. Statistics do lie in a world where all normal frames of reference are gone.

This holiday season may be slightly better than last. It is not a foregone conclusion, but it is a possibility. Sales, however, won’t be up the 8.7% that they were in 2005 or the 6.6% in 2006. This year would have to be as good as either of those or better for the Christmas retail numbers to be any good. Otherwise, rejoicing is out of the question.

Douglas A. McIntyre