November 29, 2003

No Coherent Narrative...

The shape of consumer demand this Christmas is still very unclear:

Holiday retail sales expected to be jolly, not jubilant. - Nov. 28, 2003: ..."The consumer is jittery," said Hastings of Bernard Sands. "Rising debt levels, inflation and higher gasoline prices are all real threats and a drag on spending." Despite signs of a pickup in the economy and an improving labor market, consumers don't appear to be feeling the Yuletide cheer. "The economy still has to prove itself and create millions of new jobs," Hastings said. "The consumer is excessively dependent on all forms of credit for spending."

The Conference Board in a survey Monday said U.S. households on average are expected to spend $455 on gifts this year, down 5 percent from 2002. "The 5 percent drop is shocking," said Delos Smith, economist with the Conference Board, a New York-based business research group. "It indicates that perhaps the consumer tax rebate stimulus that benefited retailers during the back-to-school season has petered out." Additionally, a survey from the Consumer Federation of America and the Credit Union National Association said 34 percent of consumers polled said they would spend less during the holidays this year compared to last year.

Wal-Mart (WMT: Research, Estimates) earlier this month sent jitters through the industry when it acknowledged that it has yet to see strength in consumer spending. "Wal-Mart's news is a very big deal," Kurt Barnard, an independent retail consultant, said. "There's no doubt that a significant number of consumers are shopping paycheck to paycheck. Most are also waiting for price reductions. So saying that the consumer is still cautious is a good indicator that the holiday season will only be moderately better than last year."...

Posted by DeLong at November 29, 2003 05:02 PM | TrackBack


>>The Conference Board in a survey Monday said U.S. households on average are expected to spend $455 on gifts this year, down 5 percent from 2002.

Wait a moment - didn't I hear in the news just two days ago that holiday spending was projected to be rising 5.7%? Of course, that was a retail consortium, and this other estimate is a research organization. Incoherent narrative indeed. How many of those consumers who say they're going to spend less actually will?

Posted by: Harrow on November 29, 2003 05:31 PM


Query: You state that expected consumer purchases are down 5% from last year. Do you mean last year's expected consumer purchases or last year's actual consumer purchases?

In other words, assume that consumers always underestimate their purchases by 10%. Thus, last year, they estimated $100, but spent $110. This year, assume that they estimate spending $105. The estimate will still be down a little less than 5% from last year's actual spending, perhaps indicating that the Administration's economic policy is not working, but will be up 5% from last year's estimate, which would support a conclusion that the policy is having a positive effect.

Stated another way, we have to compare apples to apples in order to make some sense out of a figure that's as loosey-goosey in the first instance as consumer estimates of what they might do.

Posted by: Stuart Levine on November 29, 2003 05:36 PM


On the subject of no coherent narrative, I am stunned by how many net radio stations make it impossible to get sound out of them.

Posted by: David Lloyd-Jones on November 30, 2003 02:45 AM


David, you've got to play them backwards :)

Posted by: Barry on November 30, 2003 06:11 AM


I am not sure why Dr. Delong thinks that guy worrying about "inflation" is worth quoting. The 12-month change of the core deflator was at its cyclical low in October.

But more to the point, it seems that there are two sources of information on Christmas sales: what the equity analysts and shippers EXPECT sales to be and what the stores are reporting they actually ARE. I still wonder why the former (Christmas sales forecasts) are trotted out every November with such fanfare. It seems they are always wrong.

(There is also the matter of how to interpret them. If Q403 retail sales are 6% above year-ago levels in nominal terms, then they will be roughly flat to Q303 in real terms. As regards the economy's cyclical "momentum", that would not be a good thing, although the equity analysts may not care so much about that.)

Note to Mark: You had the better number. According to the SCF data, the top two quintles take 59% of personal income, not the 2/3 that I suggested. Serves me right for just eyeballing. And good catch by you.

But I am sticking to my story. Many amateur and professional forecasters instinctively overestimate Joe Sixpack's importance to the business cycle. By most acccounts, Joe has a low income, a low saving rate and is liquidity constrained. The first attribute dictates that his share of total consumption is small and the latter two imply (I think) that the variability of that spending is not really up to Joe.

So, rather than focusing on Joe, we should monitor Nigel Singlemalt, who spends far more than Joe, varies his spending more abruptly and may determine if Joe even has an income. Nigel may be Joe's current boss or prospective boss. And if Nigel has recently let Joe go, he may be doubling the damage by urging his firm's lobbyists down in Washington to make sure that the extended UI benefits run out early in the new year.

Feel for Joe. Vote for folks who care about Joe and his family. But when forecasting, watch Nigel. I think.

Posted by: Gerard MacDonell on November 30, 2003 10:30 AM


As of Sept the y/y ch: in the retail deflator
was -1.1 ; for GAF type sales -- dept store merchandise (think WMT) -- it was -4.4%.
Real GAF sales were 11.8% above year ago levels. Since Dec, 1999 the trend growth rate for real GAF has been about 9%, so Sept sales were above the recent trned. they were above this trend in Dec 2001 and below trend last Dec.

For total real retail sales trend growth since Dec 1999 has been about 6%.

Most comments at this time about Xmas are useless.
The difference between a good and a poor Xmas is each person buying one or two items more or less.
Moreover, the bulk of Xmas shopping has moved later and later into the season over the past decade. The best way to get a feel for Xmas sales is watch how the retailers act. They are trying to do with fewer "sales" this year. So if you see them starting to cutting prices we could be in trouble. the problem is how to tell programed sales from price cutting. Watch WMT weekly sales to see how they describe them.

Kurt Bernard is a good, well respected analyst,
as is Delos Smith.

Posted by: spencer on November 30, 2003 11:13 AM


Post a comment