- While retail industry groups predict record sales, consumer surveys say otherwise
- Holiday spending habits are reminiscent of those seen during the 2009 Great Recession
- Stocks show an inverse relationship between Black Friday sales and end of year performance
Black Friday – Boom or Bust?
The day after Thanksgiving is another American tradition – Black Friday. The ‘Black’ normally refers to retailers trying sell enough goods, so their income statements are in the ‘black,’ or profitable, for the year. This year the color may refer more to consumer’s moods.
Retail industry groups are predicting another record year of sales. The National Retail Federation forecasts a 6-8% jump over the $890 billion people spent last holiday season.1 However, according to surveys, consumers are going to reel in their spending this winter.
People are concerned about high prices, rising borrowing costs and a recession. A recent survey showed 62% of consumers are worried about job security. And 35% said they are worried about their financial situation.2
Researchers have noticed several behaviors last seen in 2009 during the Great Recession. People are spending less. They plan on spending 20% less this holiday season compared to the last 3 seasons. The main reason given is inflation. And when they do spend, they are buying gifts for fewer people or less expensive items.
Impulse buying is being avoided. Consumers are planning their purchases. They are searching for the best deals and prioritizing necessities. Cash is being used as a primary form of payment. Fewer people are using buy-now-pay-later options as they try to avoid debt.
Finally, shoppers are much more sensitive to price. 90% of those surveyed said price is the major factor in holiday shopping. People are choosing value brands with decent quality over premium brands.3
Black Friday and the Stock Market
Who will be right this Black Friday – the retail industry or the researchers? Will it be a boom or a bust? When it comes to the stock market, the impact isn’t what you might expect.
Analysts looked at the post-Thanksgiving behavior of the S&P Retail Select Industry Index SPSIRE. The index shows that if stocks fell on weak holiday sales, they would then rise through to the end of the year. Just the opposite tended to happen when initial reports show stronger-than-expected sales. This was the case in 73% of the years since the index was created in 1999. The direction of that initial two-day post-Thanksgiving window was the opposite of its direction from then until the end of the year.4
Researchers believe this inverse correlation is caused by investors overemphasizing Black Friday sales reports. When sales go well, investors overreact and conclude that happy days are here again. When reality sinks in over the next few weeks, as it almost always does, the market corrects itself. Investment analysts concluded that the best advice is to pay no attention to Black Friday sales reports and enjoy your Thanksgiving weekend.
What economists are concerned about is people behaving like the recession is already here. This could become a self-fulfilling prophecy. Reduced spending leads to reduced sales. Which, in turn, reduces business earnings, lowers stock prices and tax receipts. Businesses then slow production and lay people off. With less money to spend, consumers continue to fuel the downward spiral. This economic uncertainty calls for stable safe haven assets. A Gold IRA can give you the gift of peace of mind this holiday season. Contact us today to learn more.