Monday, November 29, 2010

Will This Be A Better Holiday Season?

From Bloomberg:

The average shopper in the U.S. spent 6.4 percent more over Thanksgiving weekend than last year as more people picked up jewelry and toys, heartened by the economic rebound.

About 212 million shoppers went to stores and websites over the holiday weekend, on average spending $365.34, the National Retail Federation said yesterday. The proportion of sales online rose to more than one-third of the total, according to the Washington-based trade group.

Retailers lured people into stores with promotions like Wal-Mart Stores Inc.’s $5 Barbie and J.C. Penney Co.’s $10 diamond-accented earrings. Customers such as Barb Capa, shopping at Saks Inc.’s flagship store yesterday in New York, said they’re ready to buy again as their fortunes improve.


“Consumers are more comfortable spending again, and that trend has held up,” Maggie Taylor, a vice president at Moody’s Investors Service in New York, said yesterday. “I don’t think people are as worried about losing their jobs anymore.”

On a purely anecdotal note, I noticed this weekend that in our neighborhood the Christmas decorations went out right after Thanksgiving. Part of that was really nice weather, but I also think some of it is improved sentiment. The country has had two holiday seasons in a row with a dour outlook; maybe people have settled into the fact that we are no longer falling off a cliff.

As I will show this week, most of the fundamental indicators in the economy are in pretty good shape. Consumer spending has been increasing for the last five quarters, investment is up, manufacturing -- although slowing -- is still positive, and services are still growing. The main problem is the employment picture. However, that is (regrettably) behaving in a manner similar to other expansions with high unemployment: it's taking a long time to heal. However, the last few data points (the drop in initial unemployment claims and the latest employment print) are encouraging.

In addition, the consumer is in a better position to spend this year. First, there is the higher savings rate, indicating people have been putting away money for a rainy day. Secondly, I'm guessing there is a fair amount of pent-up demand. While PCEs have been increasing for the last five quarters, they have been doing so at a smaller rate than is normal for an expansion.

What the economy needs right now is a kick in the pants (economically speaking, of course). I had thought that would come from an improving employment picture. Maybe the holiday season will provide it instead.