Ah, Thanksgiving. The time of year when Christmas music has already filled the radio waves for two weeks, your family is deciding how big the turkey should be this year, and department stores are announcing their “Black Friday” – or even Thanksgiving hours (!) – with hopes you’ll be spending more money this holiday season.
Yes, consumers may splurge
One area I’m focusing on is changes in personal income. According to the Commerce Department, after-tax income rose 1.4% from the end of June through September. Not great, but certainly an improvement from the stagnant growth we had during and immediately after the Great Recession. Rising household income usually boosts holiday spending.
Another positive sign is in the labor market. Despite the government shutdown, employers added 204,000 jobs in October Employers are now adding jobs at a pace of around 195,000 a month for the year. November’s jobs report from the Bureau of Labor Statistics is due on Dec. 6. A number well above 200,000 could give an indication of an improving outlook on jobs, which could boost consumers’ means and confidence to spend more.
What’s more, many households are feeling better about their finances due to a rising stock market and improving home prices. These trends create a wealth effect that typically leads to more spending by consumers. The S&P 500 (a stock market index of 500 large publicly traded companies) has surged over 25% so far this year. Home prices have continued to increase this year and are up over 12% nationally from one year ago, on average.
Finally, the price of gasoline has dropped to its lowest level since early 2011. This means less money is spent at the gas pump leaving more to spend on gifts.
On the other hand: consumers may hold back
Despite improving signs, the jobs market and overall economy is still far from being robust. Add the government shutdown to the equation, and you have a situation where consumer sentiment has taken a hit. One sentiment index in November dropped to its lowest level in nearly two years, and some industry analysts are already predicting weak holiday sales.
Although the National Retail Federation is predicting U.S. retail sales will rise 3.9% in November and December (higher than last year’s 3.5% growth), some large retailers such as Wal-Mart have already voiced their concerns this year, and as a result, have begun holiday discounts and promotions already, instead of after Thanksgiving. Expect to be bombarded with ads and discounts lulling you into stores this next month.
The threat of another government shutdown and reduced federal spending in early 2014 could also drag down consumer morale, curtailing holiday shopping sprees. I’ve said before: political gridlock has a detrimental effect on businesses and consumers. Any indication of another fiscal fight or shutdown could tighten the purse strings on a lot of families’ holiday budgets making Santa a little less generous this year.
What Will YOU Do?
Ultimately, a clear picture on this year’s holiday spending won’t be available until after all the gifts are unwrapped and the confetti falls on a new year.
Until then, we can only make predictions and hear from you, the consumer.
Do you plan to spend more or less on gifts this year? Let me know in the comments section!