Industry Market Trends

Can Holiday Spending Lift Economic Doom and Gloom?

Dec 11, 2012

With the economy facing numerous challenges and a great deal of uncertainty about the short-term outlook for business, many companies are looking forward to the annual boost in holiday-related spending near the end of 2012. But will year-end holiday spending be enough to dispel financial doubts and enable business owners to ring in the New Year with cheer?

The economy continues to struggle with an elevated unemployment rate, uncertainty over the looming fiscal cliff and weakened demand for exports due to downturns in the European and Chinese markets. But consumer spending accounts for roughly 70 percent of the overall United States economy, and with a strong year-end boost in retail sales expected this holiday season, companies across industries and down the supply chain can expect to see encouraging gains.

As in previous years, consumer spending is expected to climb during the holiday season, although the boost is forecast to be relatively modest compared to pre-recession increases. According to the National Retail Federation (NRF), holiday sales will increase 4.1 percent this year over 2011, reaching a total of $586.1 billion for November and December combined.

The average holiday shopper will spend $749.51 this year, up slightly from the $740.57 spent in 2011. The biggest portion of shoppers' budgets this year will go toward gifts for family members, with the average person planning to spend $421.82. Additionally, people will spend $75.13 on friends, $23.48 on co-workers and $28.13 on others.

Black Friday and Cyber Monday, traditionally the busiest shopping days of the year, have already contributed a significant amount to overall holiday spending. Based on estimates from the NRF, 247 million consumers visited stores and websites during the weekend following Thanksgiving, up from 226 million last year. The average consumer spent $423 on Black Friday weekend, up from $398 last year, while total spending reached an estimated $59.1 billion for the three-day period in late November alone.

On Cyber Monday, the busiest online shopping day, 129 million consumers hit the Web to take advantage of holiday deals, spending an average of $194.46 online. Broken down by product category, the most popular gifts were clothing and clothing accessories (31.4 percent); followed by books, CDs, DVDs, videos and video games (27.8 percent); consumer electronics (25.2 percent); and toys (17.5 percent).

Despite these gains, economic uncertainty has led to conservative consumer spending, and although businesses can expect a noticeable uptick in sales this holiday season, it may not match the boost from previous years.

"Economic headwinds nagging consumers this fall include stubbornly high gasoline prices that continue to creep up and soft housing and job markets," Carl Steidtmann, Deloitte's chief economist, said in a recent report. "While consumers turned out in the summer to give retailers solid gains for a few months, that pace may be difficult to sustain through the end of the year... however, retailers may benefit from a post-election consumer spending boost."

Deloitte's holiday sales forecast, which extends through January (one month longer than the NRF's projection) estimates sales to increase 3.5 percent to 4 percent over the previous year, totaling between $920 billion and $925 billion.

A separate report from Nielsen offers a slightly more optimistic outlook, citing improved consumer confidence as a major driver of increased holiday sales this year. Roughly six out of 10 consumers plan to spend the same amount as they did last year, while 27 percent plan to spend less (down from 37 percent in 2011) and 8 percent plan to spend more (up from 5 percent in 2011).

"With nearly a quarter of consumers indicating they have already started their holiday shopping by mid-September, I expect 'pragmatic enthusiasm' to inch spending levels higher than last year," James Russo, vice president of global consumer insights at Nielsen, noted. "Overall, this could be a season to celebrate.  Nielsen's Consumer Confidence Index is the highest since before the recession. Planned shopping-list usage is down so impulse buying could be up, and shoppers across the income spectrum say they plan to spend more in multiple areas."

Most Americans have become accustomed to living on tighter budgets in recent years, and although economic problems are having a negative effect on consumer spending plans, the outlook has improved. The NRF found that 52.3 percent of consumers say the state of the U.S. economy will affect their spending plans for the 2012 holiday season, down from 62.2 percent last year.

"More than half of Americans this holiday season will feel the impact of the economy and will compensate by doing what they've been doing for several years - looking for ways to cut any corners, comparative shop online and in stores more often and even planning to travel less or not at all," NRF President and CEO Matthew Shay noted.

In general, consumer spending is likely to provide a much-needed boost to the retail sector, and, in turn, lend extra support to the economy as a whole, including manufacturing industries. Although it's unlikely that the fiscal cliff situation will be resolved in time to have any positive effect on spending rates, individual debt may be just as powerful an influence on consumers, and debt levels have remained relatively stable.

"Americans come into the holiday season with about as much debt as they had a year ago. About half the public said they have a lot or some debt, and about half respond that they have little or none," CNBC reports. "The more a person believes they have in debt, the less they are likely to spend on holiday shopping. Those who say they have lots of debt say they will spend $584 on average; those who say they have no debt will spend $910. About 14 percent of the public said they have 'a lot of debt,' unchanged from a year ago."