Bah, humbug! Holiday season may not be so jolly

The growth in seasonal spending is slowing as economic uncertainty looms.

By Jonathan Berr Nov 26, 2012 5:45PM
Image, Santa Claus, copyright CorbisForget about Black Friday and Cyber Monday records. There is plenty of evidence indicating that this holiday season may be less jolly than last year's.

The National Retail Federation estimates that spending during the Black Friday weekend hit a record $59.1 billion, an increase of 12.8% from 2011. But that represents a slowdown from 2011, when sales rose 16%.  

Cyber Monday sales are expected to hit $1.5 billion, an increase of about 20%, according to comScore. But that is also a slowdown from the 48% increase in 2011. 

Even if you take these statistics at face value, the Washington Post quotes economist Paul Dales of Capital Economics as saying that there isn't a strong relationship between retail sales performance during the week of Thanksgiving and the rest of the holiday season. The data also is skewed since many chains started their sales on Thanksgiving, which probably pulled some spending forward from Friday.

Retailers aren't going to have an easy time of it during the next few weeks as they try to avoid sacrificing too much margin to bring in shoppers. Wall Street knows this, which explains why shares of many retailers, such as Wal-Mart (WMT), Target (TGT), Macy's (M) and Sears (SHLD), were trading down today despite the Black Friday and Cyber Monday hype. (AMZN), the largest e-tailer, and online auction giant eBay (EBAY), were trading up, though it is not clear whether this was a commentary on how investors expect them to fare during the holidays compared with their bricks-and-mortar counterparts.

"Bottom line is the environment is tough and discounts rule," writes Stacey Widlitz, an independent retail analyst, in an email. "Only difference with last year is that discounts are coming earlier and freebies are more aggressive (free shipping, price matching, free layaway). While that may be good news for consumers, retailers will pay the price when it comes to the bottom line."

As USA Today noted, forecasts for 2012 holiday spending call for increases ranging from 3% to 4.1%, considerably lower than last year's gain of 5.8%. The reasons for this are many. First, even Santa Claus is no match for the law of large numbers. Coming out of a recession, figures are bound to show more dramatic changes that grow smaller over time as the economy continues to improve. Then there's the bigger picture.

Many Americans are still suffering as the U.S. economy expands at an anemic rate of less than 2%. Worldwide economic growth is forecast by the International Monetary Fund to be 3.3%, down from an earlier forecast. The IMF also puts the odds of a recession in the U.S. next year at 15%. Economists are expecting the unemployment rate to stay stuck around 8% for the foreseeable future, according to the New York Times. The specter of the fiscal cliff, continued turmoil in Europe and worries about a slowdown in China don't help matters either. 

It's hardly a shock that the Financial Security Index slumped in November to its third-lowest reading of the year. More than one-third of Americans say their top financial priority is getting caught up on their bills, the survey says.

"This is consistent with the stagnant household incomes many people are experiencing, as well as continued escalation in food, healthcare and energy costs that are squeezing households' buying power," said Greg McBride, CFA,'s senior financial analyst, in a press release.

The good news for consumers is that there will be plenty of bargains this holiday season, though it remains to be seen whether retailers will be feeling merry once it's all over.

Jonathan Berr is long Target. Follow him on Twitter @jdberr

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