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Policy / ECONOMY

Holiday Shopping Could Still Go Over the Cliff

Shoes on sale are displayed at a store as the busy holiday shopping season begins in Chicago, on Wednesday, Nov. 21, 2012. (AP Photo/Nam Y. Huh)

Early reports of strong Black Friday sales might lead you to conclude that this is a very good year for holiday shopping, despite the January threat of tax hikes for millions of Americans as part of the so-called fiscal cliff.

Consumer-confidence numbers also have steadily risen, hitting highs not seen since early 2008. Doesn’t that mean more gifts under the nation’s Christmas trees and a jolly holiday for retailers?

Not necessarily, economists say.

 

The relationship between Black Friday, consumer confidence, and holiday spending is shaky—and concerns about the fiscal cliff could still mar this shopping season.

“What happens in Washington regarding the fiscal cliff has the potential to alter holiday spending, even at this late date,” said Scott Hoyt, senior director of consumer economics for Moody’s Analytics.

Retailers celebrate Black Friday, the first major shopping day of the season, with steep discounts and long hours, often extending through the weekend and into what's known as Cyber Monday, a day of online deals. According to the National Retail Federation, the number of online and in-store shoppers hit a record 247 million over Thanksgiving and Black Friday weekend, celebrated from Nov. 22-25 this year. Total spending was an estimated at $59.1 billion.

But don't take too much stock in these numbers, says Paul Ashworth, chief U.S. economist at macroeconomic research firm Capital Economics. For one, they aren't official, government-issued numbers at the national level—they're anecdotal.

And they just aren't great at predicting what the rest of the season will look like.

“If you think about this conceptually, people that spend more at Black Friday, does that mean they’ll then spend more through the rest of the holiday season, or does it mean because they spent money on Black Friday, they’ve bought all their holiday gifts and they don’t need to spend money?” Ashworth asks.

Over the course of the fall, economists puzzled over why consumers weren't more worried about the fiscal cliff. Confidence continued to climb; on Tuesday, The Conference Board reported that confidence was at its highest level since February 2008. Businesses said that their worries about the cliff were causing them to hold off on investing and hiring; and indeed, business investment dropped off. But little was seen on the consumer side that showed concern or uncertainty over the fiscal cliff to be weighing on their habits. Until this week.

On Thursday, the Commerce Department released its second reading of third-quarter gross domestic product. Although the headline number was revised up to 2.7 percent from an initial reading of 2 percent last month, the picture below was weak. In particular, consumption growth was revised to just 1.4 percent, down from an initial estimate of 2 percent.

“It’s possible they were thinking about [the cliff] a bit more than we thought,” Ashworth says of consumers. He warns, however, that confidence numbers are not great at predicting future behavior. Last year, consumer confidence tumbled in the middle of the year, just as consumption growth accelerated.

Hoyt says that holiday spending in recent years has generally traced a barbell shape: strong on Black Friday weekend, then dropping off, and perking back up in the week or so preceding Christmas. Lawmakers can still screw up the second peak holiday shopping period if a deal to avert the fiscal cliff seems out of reach.

“If talks break down, if it looks like there isn’t going to be a deal in the near future, if people get more convinced their taxes are going up and up significantly on January 1st, that last wave of spending could be particularly weak,” Hoyt says.

And the extra weekend that shoppers have between Thanksgiving and Christmas this year, due to the timing of the two holidays, is unlikely to affect the amount they'll spend. People tend to do their shopping in the time allotted, Hoyt says.

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