Why are economists and retailers surprised at lower Black Friday sales given the slight rise in the economy?

Ask an Economist
Question: 

Why are economists and retailers surprised at the 11 percent lower Black Friday sales given the slight rise in the economy? Seems like just because gas is a bit less expensive and overall unemployment, people have still taken a financial hit that cannot be recovered in bank accounts simply by saving a few dollars at the gas pump. Is there an economic theory behind this surprise? I know I save more than most people but the outcome doesn't surprise me. Thanks for any thoughts and for this service!

Answer: 

Black Friday is mostly a marketing gimmick to stimulate shopping during an extended weekend of wide-spread idleness, and the weekend’s performance is not a reliable predictor of total holiday spending or the health of the economy. To understand our overall ability to spend during the holiday season, economists look at the well-being of the workforce and the health of the broader economy, not just a specific weekend.

They would note, for example, there are more people working in the U.S. than last year, and that total wages and salaries are about 4.2 percent higher. Growing consumer confidence coupled with immediate market feedbacks like lower gasoline prices would further buoy expectations that not only holiday spending, but total household retail spending will increase this year.

But there are downside factors. For one, our social security insurance payments returned to their pre-recession levels and increased by two percentage points, which in turn reduced take-home pay two-percent compared to last year. Next, we still have much too-high rates of unemployment and under-employment, which means a substantial fraction of households are in no position to increase their overall spending or their holiday spending.

Bottom line: only minor growth in retail spending should be expected this holiday season.

Answered by:
David A. Swenson
Associate Scientist