2011 End of Year Update on Consumer Spending

Consumer spending currently accounts for approximately 70% of economic growth, as measured by Gross Domestic Product (GDP) in the United States.  Hence, any news with respect to increases in consumer spending is greeted warmly by the markets looking for some signs of sustainable economic growth momentum.  With this information as the back-drop, let’s review some of the more recent reports related to the spending activities of American consumers:

  • According to ShopperTrak, Black Friday sales in 2011 rose 6.6% on a year-over-year basis to $11.4 billion.
  • According to Consumer Growth Partners, holiday sales for the four day period starting on Black Friday and ending on Cyber Monday in 2011 rose 10% on a year-over-year basis to $43 billion.
  • According to ShopperTrak, the initial holiday sales momentum that was observed over the four day Thanksgiving weekend has slowed as evidenced by sales the following week being down 1.9% on a year-over-year basis.
  • According to Anne D’Innocenzio of the Associated Press in a recent article entitled, “As bills roll in, cash-strapped consumers return Black Friday buys, “For every dollar stores take in this holiday season, they’ll have to give back 9.9 cents in returns, up from 9.8 cents last year.  In better economic times, it’s about 7 cents.”
  • According to Bloomberg, retail sales rose 0.2% in November versus the 0.6% median forecast of economists surveyed by Bloomberg News.  While this was the sixth straight month of retail sales increases, it was lower than October and represented the slowest pace of retail sales growth in five months.
  • November sales gains occurred in areas such as autos and electronics while Americans apparently cut back in areas such as groceries and restaurant meals.
  • A large amount of the electronics sales that took place early on during the Holiday Sales shopping bonanza took place at deeply discounted levels.  According to Alex Kowalski of Bloomberg in an article entitled, U.S. Retail Sales Rose at a Slower Pace in November”, “…deals ranged from 40% off a DVD player from Samsung Electronics Co. to 80% off a children’s camcorder.”
  • According to the Wall Street Journal, Consumer credit increased by $7.65 billion to $2.457 trillion in October of 2011 driven primarily by increases in student loans and car loans, and, to a lesser extent, credit card debt.
  • Chris Christopher of HIS Global Insight cautioned against too much optimism over Retail Sales data increases as according to his figures; about a third of this year’s increase-to-date is due to rising prices as inflation rose 3.5% for the twelve months ending in October of 2011.

We, at Hennion & Walsh, are encouraged by the six month trend of retails sales increases but remain cautious around how successful this season of holiday sales will ultimately be after discounting, overall monthly sales and inflation are factored into the equation.  Despite the initial Black Friday/Cyber Monday headline numbers, we believe that American consumers are trying to live within their means this holiday season despite what many economists and media personalities are leading us to believe.  To this end, it seems that much of the consumer spending increases observed to date have been financed either through consumer debt or through consumers dipping into their own savings as wages have largely remained stagnant and wage raises that have occurred have not been significant.

We also struggle to find enough underlying economic fundaments to suggest that consumer spending will continue to increase leading into 2012.  In our opinion, until we see consistent and sustainable improvement in the labor and residential real estate markets, in addition to a European debt crisis resolution that appeases the global markets, economic growth, while still positive, will likely remain muted as consumers place additional rubber bands around their respective wallets.