Interpreting 2011 “Black Friday” Spending Numbers

by Aaron Krowne
Founder, ML-Implode.com

The discussion about “Black Friday” consumer spending is really surreal.

“Up 30%!!”, scream the headlines.

But let’s just pause for a moment to think about this.

Could the situation possibly be 30% better than last year?

Well, let’s go down the checklist of how such massively-increased spending might be possible:

A) consumers have 30% more money to
B) consumers simply borrowed the difference (via credit cards)
C) consumers simply moved their holiday spending forward to the “Black Friday” weekend and will spend less later.
D) consumers have resumed home equity extraction (HAHA– just kidding).

(A) is most assuredly not the answer. Tax withholding numbers for this year have been anemic and do not show any meaningful increase. Remember that people are simply not earning more if their withholdings tax payments are not going up; so this data point pretty much precludes an increase in income.

As far as explanation (B), increased use of credit cards, the data we have so far suggests “no”. Consumer credit has actually been meaningfully down this year. Now, it could have spiked up massively since the last release of the Fed’s consumer debt data, but I doubt this accounts for a majority of the 30%, given the secular trend here.

That leaves (C) — consumers simply moving their spending to the “Black Friday weekend” in a panicked rush to pick up as many deals as possible. By process of elimination, this is most likely. It also makes sense intuitive sense given the long-run reality of consumers whose wages are decreasing (the witholdings taxes show the overall amount; whereas the median is actually falling) and who are borrowing less on an ongoing basis.

Thus, the massive Black Friday Weekend spending rush is actually more of a negative sign; consumers are more desperate than ever for the deals and will pepper spray each other in WalMart at 12:01 am to get them. Excuse me if I’m not heartened by this news.

So don’t be surprised if holiday sales for the rest of December and the entire holiday season come in below expectations because of it.

Addendum: The Conference Board’s Consumer Confidence index was widely reported as “soaring” today:

(Dow Jones) U.S. consumers seemed to have shrugged off all the angst from Washington’s debt-ceiling fight of the summer. Their spirits soared in November to the highest reading since July, according to a report released Tuesday.

The Conference Board, a private research group, said its index of consumer confidence jumped to 56.0 in November, from a revised 40.9 in October, first reported as 39.8.

The November index was far better than the 45.0 expected by economists surveyed by Dow Jones Newswires.

Once again, it is hard to dispute this number, but drilling down into it, we find the key changed index components are:

• “Consumer expectations for economic activity over the next six months surged to 67.8… from a revised 50.0…”
• “The present situation index, a gauge of consumers’ assessment of current economic conditions, increased to 38.3 from a revised 27.1…”

Interestingly, none of the other, more specific areas, such as the availability of jobs, likelihood of better incomes, or inflation, changed much. So we see that by far, the “soaring” of this index was based overwhelmingly on impressions of some vague near-future “economic improvement”… which will somehow not be based on a meaningful increase in incomes, more jobs, or reduced inflation.

Ok… explanation… well; I’m looking in the direction of the financial media, here…

The present situation index is even more perplexing — how do we get a significantly improved perception of present economic conditions without either a meaningful change in economic data OR even acknowledgement by the same survey participants of significant improvements in underlyings?

‘Tis the season, perhaps (to imagine a return to better times, and spend accordingly on Black Friday weekend — but not even pretend that this optimism is based on any concrete prerequisites!)?