Economic Impact: Holiday retail sales should be stronger this season

The holiday selling season got off to a strong start on Black Friday but the results were mixed when comparing online versus in-store sales.

Online spending for Black Friday, the traditional start of the holiday selling season, was up 16.9 percent compared with the same day in 2016, according to Adobe Digital Insights, which tracks online spending in the nation’s 100 largest retail websites.

On the other hand, data from research firm ShopperTrak shows Thanksgiving Day and Black Friday foot traffic at brick-and-mortar stores fell when compared to the same days in 2016. Shopper traffic at stores just on Black Friday has essentially been unchanged for the last two years, but flat foot traffic doesn’t necessarily translate into flat revenue.

So how will overall holiday sales fare during this time of year that represents about 20 percent of the retail industry’s total sales?

One method for predicting holiday spending is comparing back-to-school spending during the same year.

For instance, back-to-school spending in August 2012 increased 2.9 percent, while holiday spending — defined as sales in November and December of the same year — also rose 3.1 percent. The retail spending figures exclude food and auto sales.

The relationship between back-to-school and holiday sales is not perfect, and sometimes back-to-school sales are a bit higher than holiday sales (as what happened in 2011, 2013 and 2014) or a bit lower (as in 2015 and 2016).

But back-to-school spending generally is a reliable gauge of holiday spending.

This year’s August back-to-school sales rose 4.3 percent over 2016 sales, suggesting strong growth in holiday sales this November and December. And that’s great news for retailers.

Recent announcements by some national retailers and online sellers to hire more seasonal workers than last year supports an optimistic outlook for the upcoming holiday selling season.

Results from Cyber Monday also point to a good year. According to Adobe Analytics, Cyber Monday was the biggest U.S. online shopping day ever, with a record $6.59 billion spent, up 17 percent from last year.

The National Retail Federation, the nation's largest retail trade group, predicts an increase in holiday sales between 3.6 to 4 percent, including online business, to $678.8 billion compared with $655.8 billion in 2016.

Global financial services firm Deloitte is more optimistic, looking for this year's holiday sales to rise between 4 percent and 4.5 percent from November through January compared with the same period a year ago.

Economic reports also point to higher sales this year. Employment in the nation is picking up and the jobless rate is declining.

Personal income is up 3.4 percent for the 12 months that ended in October, or by $539 billion. American consumers like to spend, so much of that increase in income will translate into purchases.

Christine Chmura is CEO and Chief Economist at Chmura Economics & Analytics. She can be reached at (804) 649-3640 or receive e-mail at chris.chmura@chmuraecon.com.

December 2017