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Why 2011 May be a Jolly Year for Holiday Retail Sales

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It's that time again. Black Friday has arrived again, and with it the crowds of shoppers, the big promotions, and the analysts who fret that the next several weeks will make or break the year for retailers.

Retailers have a lot riding on the Holiday Season. And there is a lot that can go wrong, especially this year. The weather in December is always a wild card — blizzards and snow storms can dampen the shopping season if they strike at the wrong time. A global financial crisis that causes markets to tank erodes the confidence of shoppers, particularly high-end spenders that flood into the likes of Saks and Neiman-Marcus. Hannukah can come late in the season, as it does this year — unless it comes to early. And for the last several years, analysts have added a poor job market. With unemployment high, jobs scarce and wages dampened, they wonder whether people will spend? Accordingly, the forecasts are pretty lame for this year. National Retail Federation predicts it will be just an average season, with sales rising a meager 2.8 percent from 2011.

That's likely to be too pessimistic.

I've reported through nearly two dozen holiday shopping seasons. And I've learned that if there's one thing the American consumer can do, even in these difficult times, it is rally to purchase stuff for friends and family in the last several weeks of the year. In addition, American retailers are ingenious when it comes to devising ways of convincing people that they absolutely must spend now.

In retail, the trend is your friend. And generally speaking, the NRF has been somewhat behind the trends for the last several years. Like most economic forecasters, NRF has difficulty forecasting around inflection points. In the fall of 2008, NRF pulled in its horns and projected that the turmoil in the economy would take a toll on sales. In September 2008, it projected sales would rise 2.2 percent, which would represent a about half the 4.4 percent annual rate for the previous ten years. But that proved to be wildly optimistic. During the core of the holiday season, the economy was shedding more than 100,000 jobs each week. Shell-shocked consumers pulled back, and sales fell 4.4 percent, according to NRF. (see the chart here). As many forecasters do, the NRF then compensated for excessive optimism with excessive pessimism. In the fall of 2009, it forecast that sales would drop again, by 1.0 percent. That proved to be a little too pessimistic. Sales fell .4 percent in 2009 — a bad year, but slightly better than the forecast. In 2010, even though the economy and retail sales had been growing decently, NRF issued a similarly chastened forecast. Sales would rise, but only by a meager 2.3 percent. Instead, they came in at an extremely healthy 5.2 percent.

The more general trend in retail sales is also positive. The Census Bureau just reported sales for October. They were up .5 percent from September, and have risen steadily throughout the year. Compared with the same period in 2010, retail sales for August through October were up 7.6 percent. This year, as was the case in 2010, consumer spending has been gaining momentum in the months leading up to the holiday season.

Of course, many factors influence spending — the level of consumer confidence, the availability of credit, inflation, the continual clash of fear and optimism. But one factor may be the most important: employment. In 2008 and 2009, the only time in recent when holiday sales fell, the economy was shedding jobs. On this Black Friday, millions of Americans are out of work, unemployment is at 9.0 percent, and the U-6, which takes into account frustrated job seekers and people who work part-time but would prefer to work full-time, stands at 16.2 percent. Those are extremely high levels by historical standards. But compared with a year ago, the labor market has improved somewhat. In October 2010, the unemployment rate was 9.7 percent and the U-6 was at 17 percent. In October 2011, there were 1.5 million more people with payroll jobs than there were in 2010. In the household survey, the means through which the Bureau of Labor Statistics compiles the unemployment report, 1.218 million more Americans said they were working in October 2011 than did in October 2010.

Plenty could still go wrong this holiday shopping season. But if the global economy manages to hold it together for the next several weeks — a big if — recent trends suggest plenty could go right for American retailers.

Daniel Gross is economics editor at Yahoo! Finance

Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com

His most recent book is Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation

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