Consumers hike their holiday spending -- and get more for it
With Black Friday just days away, consumers can take comfort in knowing that they’ll be able to get more for their money this year.
Retailers from big-box chains such as Target (TGT) to discounters such as Ross Stores (ROST) to high-end operations such as Williams-Sonoma (WSM), Coach (COH) and Michael Kors (KORS) have all said they expected the holiday season to be promotional -- meaning that discounts will abound.
“I don’t think it will be any more intense than it was last year, but certainly more intense than it was 10, 15 years ago,” said Gus Faucher, an economist at PNC Financial Services. “People have a little bit more extra money in their pocket, so they’re a little bit more willing to spend.”
Consumers are feeling more flush as the job market and wages keep posting small but steady improvements. The jobless rate is now 4.9 percent, near the level that the Federal Reserve considers being “full employment.” Wages, which have remained stagnant for a decade, are starting to move upward. Average hourly earnings rose 2.8 percent in the year ended October 2016, according to government data.
The rally in the U.S. dollar is proving to be useful as well. That’s because “a strong dollar is putting downward pressure on import prices,” said Scott Hoyt, an economist at Moody’s Analytic. “Prices are very favorable for consumers right now, but that’s not favorable for [retailers’] sales growth.”
The stock market has been on a tear since the Donald Trump won the presidential election, but that doesn’t necessarily correlate with consumer confidence. Still, that metric has rebounded in November to its highest level since June.
Gas prices, however, are a good indicator of consumer sentiment. And Gas Buddy is forecasting a national average price of a gallon of unleaded at $2.11 for the Thanksgiving weekend, the third-lowest level in more than a decade.
Another positive for spending: Prices for consumer goods excluding food and energy have fallen since the first half of 2013 and show no signs of changing reversing, said Chris Christopher, IHS’s director of U.S. Macro and Global Economics.
“What this means is that if you don’t buy it now, and you wait a little bit, you will get things relatively cheaper on average,” Christopher said. For instance, warmer-than-usual weather in November may force apparel merchants to mark down merchandise to prevent an inventory glut in the coming weeks of holiday shopping, he said.
Though a survey released this week by Adobe (ADBE) showed that the election had cooled consumers’desire to spend on the holidays, economists said they haven’t seen any evidence of such a trend yet. A study released by Consumers Research of 1,000 shoppers found that 66.7 percent said the election results had “no effect” their holiday spending merriment.
The National Retail Federation expects holiday sales to jump 3.6 percent to $655.8 billion, well above the 10-year average of a 2.5 percent rise. Consulting firm PWC sees holiday spending hitting its highest level this year since the Great Recession, increasing 10 percent over last year.
And the International Council of Shopping Centers is forecasting a 3.3 percent gain in sales at physical stores, while a study released by Visa (V) is forecasting an increase of at least 18 percent in online sales.
