Economic data flows into the market nearly every day, but there is something about the holiday season that brings a bit more focus to the analysis. Perhaps it is because it dovetails with the end of the year and that is a natural time to step back and assess. Alternatively, it could be a function of the fact that despite the myriad beliefs and practices in North America around this time of year, people seem to unite around a common love of shopping and gift exchange. (For additional reading, also check out Be A Holiday Saver, Not A Scrooge)
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Now might be a good time, then, to consider the holiday seasons of 2010 and 2009, and what that might say about the broader economy.
Retail Sales Are Getting Better … Slowly … Maybe
According to the National Retail Federation, this holiday should be a little bit better than last year. The organization expects its members to see a 2.3% rise in spending over the holiday season. Interestingly, a similar survey suggests a traffic increase of about 3% over Black Friday. Now, there is certainly no reason to make too much of that discrepancy (they cover different time periods, after all), but it would be an interesting phenomenon all the same if there are more shoppers in the store, but still an overall pullback in how much people spending.
What is even more interesting, though, is the difference in other polls. A recent Gallup poll indicated that consumers were predicting that they would spend about 12% more than they did last year - or, rather, their predictions in November 2010 regarding what they think they will spend on Christmas is 12% higher than the predictions made in November 2009. Likewise, although most people expected to spend the same as the prior year, the number of people who said they would spend less was nearly three times higher than the number who said they would spend more. On the flip side, yet another survey from the NRF suggested that average spending may climb 1% this year - a level that would still be a bit below 2008 and well below 2007. (For related reading, see Using Consumer Spending As A Market Indicator.)
The Economic Details
The recent economic data for the United States would seem to support this idea that things are better, but not a lot. Official inflation, for instance, is up about 1.2% over the last year, while GDP is up about 2%. Average weekly earnings have risen about 2.3% over the past year, due mostly to an increase in hours worked (up 1.8%) rather than an increase in pay rates. The overall unemployment rate is also better - standing at 9.6% in October 2010 versus 9.5% in October 2009.
Of course, there are limits to the statistical methods used to calculate this data. Real unemployment, for instance, may actually be higher if there are more people whose discouragement led them to quit seeking work (which would drop them out of the unemployment numbers). Even still, the numbers all seem to center around a common notion - there is real, but small, improvement in the United States economy on a year-over-year basis. What that means for the holidays, though, is that very little is likely to change - people are not feeling great about much of anything and modest improvement does not tend to get the masses dancing in the streets.
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Wall Street Is Feeling Better
Interestingly, the average shopper seems to be cautious and expressing tepid enthusiasm about the holidays. The economic data would seem to support that attitude. And yet, Wall Street seems to be a fair bit more chipper.
The S&P 500 is up about 7% over the past year. By comparison, Wal-Mart (NYSE:WMT), the world's largest retailer, has seen its stock move basically nowhere in the past year, and the same is true for one of the largest in-store electronics retailers, Best Buy (NYSE:BBY). Amazon (Nasdaq:AMZN), though, is sitting some 27% higher, and youth-oriented retailers like Abercrombie & Fitch (NYSE:ANF) and American Eagle Outfitters (NYSE:AEO) are up 24% and 16%, respectively.
Looking at a different metric, earnings estimates are showing a fair bit of optimism as well. Analysts covering Abercrombie, for instance, are looking for sales in the January 2011 quarter to be almost 16% higher, with earnings growth of more than 28%. Even Wal-Mart analysts are looking for growth, with estimates calling for nearly 4% revenue growth and 12% earnings growth.
Status Quo for Now
Retail sales peaked right before the worst of the credit crisis in 2008 (the second quarter), dropped to a low one quarter later, and have been steadily climbing back up. Though not back to peak performance, it is clear that consumers are adjusting to the "new normal" and getting back to more normal shopping habits. While recent election results suggest a lot of people are unhappy with how things are going, the holidays of 2010 would seem to offer some good cheer - things are not back to rollicking growth by any means, but the recovery is still on and things are still getting better. (For a look a indicators that can signal a turn in the economy, take a look at The 6 Signs Of An Economic Recovery.)
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