Is it just me or do you also seem to think that many analysts are quick to dismiss the fact that Santa's pack (i.e overall holiday sales) was decidedly light this year? Well, overall holiday sales are projected to have risen a disappointingly .7% year over year.
While sales may have risen, why is it that little focus is put on total sales revenue comparative analysis? With ‘discounting' now a core part of our economy, comparing total sales revenue is a topic not often discussed. That said, let's navigate and instead of merely comparing holiday sales in 2012 vs 2011, let's go back and compare sales in 2012 vs 2008. Why 2008?
Well, that was smack in the middle of the recession that ran from December 2007 to June 2009 and came right on the heels of a Presidential election. With our economy having recovered (OR NOT) as reflected in asset valuations (thanks to Ben's QE-infinity) and the unemployment rate (a charade), how did Santa's pack look this year vs 2008?
Thanks to Rick Davis of Consumer Metrics Institute for navigating where few if any analysts care to go. Rick recently wrote the following:
On several occasions we have tried to help our readers visualize consumer behavior during the last quarter of 2012 by comparing consumer activity during the recently ended quarter with the same quarter of 2008. We chose 2008 as our comparison year because both years contain the economic distractions of a contentious presidential election — an under appreciated (if not completely unrecognized) macro-economic phenomenon.
The last quarter of 2008 is also interesting as a benchmark quarter because it also experienced rapidly falling energy prices — which in turn triggered the increased consumer discretionary spending that officially ended the “Great Recession” some six months later. However, this year also includes the economic distortions caused by Hurricane Sandy in late October and early November. The chart below is an update of our earlier charts through the end of the holiday season and calendar year (with the time frames of both years shown relative to the respective election days):
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In both election cycles we witnessed a significant fall-off in consumer demand that was broadly coincidental with the election. Additionally we can see the overlaid impact of “Super Storm” Sandy in very late October 2012 through the first week of November. Perhaps more importantly, as we now look back on the entire last quarter of 2012 we can see it diverge significantly downward from 2008. Some observations from the above chart are:
– Year-over-year on-line consumer demand for discretionary durable goods in 2012 was substantially weaker than in 2008 prior to the general election (and long before Sandy appeared on the horizon) — even though the 2008 election arguably occurred during the very heart of the “Great Recession.” We credit a substantial part of that weakness to the tone of the electoral rhetoric — although 2008 had perhaps more uncertainty associated with it, 2012 was fraught with economic and employment doomsday messages that could give even the most optimistic consumers some reason for caution.
– Once the incessant and depressing rhetoric from the election campaign had been laid to rest, Washington-politics-as-usual managed to create a new bogeyman: “the Fiscal Cliff.” We're not convinced that consumer fear of the “Fiscal Cliff” impacted their behavior in any significant manner, although some will certainly argue that it was the principal cause of the weaker-than-expected holiday season. Now that the “Fiscal Cliff” has morphed into the “Fiscal Slippery Slope” we will have an opportunity to see if consumer behavior changes in any measurable way.
– As we predicted in our last newsletter, the economic “green shoots” some pundits saw within the 2012 “Black Friday” retail reports were actually (once again) only sales pulled forward from the more traditional December spending season.
And reflecting a little deeper on the last point above, when you look at our “Absolute Demand Index” for the past 60 days you can see what is perhaps the new structural norm for the seasonal holiday spending patterns of the American shopper:
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This chart shows three distinct peaks during the holiday season: (1) the broad first peak roughly coincident with “Black Friday”; (2) a sharper and slightly higher pre-Christmas spike; and (3) a post-Christmas peak that is at least as intense as the pre-Christmas spike. (Note that the nature of our data — i.e., on-line transactions — probably moves the pre-Christmas spike forward by several days relative to brick-and-mortar store sales as consumers compensate for shipping times.)
While the existence of the three peaks is nothing new, the shape of the peaks has changed:
– The front slope of the “Black Friday” peak has broadened substantially by moving earlier into November — as a direct consequence of retailers pushing their promotions into the weeks preceding Thanksgiving. In the above chart we are seeing the on-line equivalent of brick-and-mortar retailers moving the “door opening” specials from 8:00am “Black Friday” to 6:00am and then to 4:00am and then to midnight and then ultimately to Thanksgiving evening. In a zero-sum economy such aggressive and serially earlier promotions only pull sales forward from more traditional time frames. The danger lies in not recognizing the zero-sum aspect and forecasting improved holiday sales based on the earliest returns alone.
– We would also argue that the shift to earlier spending is the result of frugal (or “cash strapped”) shoppers becoming more savvy over the past few years and taking extremely good deals when they see them. The flip side of that argument is that retailers have now trained their customers to snap at only the most deeply discounted (and earliest — or alternately post-Christmas) promotions. The result is an interplay between cautious consumers and increasingly desperate/aggressive retailers that ultimately reduces aggregate retailer margins.
And in at least one respect the weakness of our consumer data during the holiday season surprised us: like 2008 the 2012 holiday season came on the heels of a decline in gasoline prices. Total gasoline consumption in the U.S. for 2012 is expected to be about 130 billion gallons, off about 8% from the consumption level of 2008. Using simple arithmetic (and assuming inelastic short-term demand), each penny in lower gasoline prices saves U.S. consumers and businesses an annualized $1.3 billion of non-discretionary spending. Over the past 5 years the retail price of gasoline has behaved as follows (thanks to the excellent charts provided by the good folks atGasBuddy.com):
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But this chart tells us a couple of things about the recent drop in gasoline prices:
– Although the fourth quarter drop was nice, the average price of gasoline during all of 2012 was actually at an all-time high — some 9 cents higher than 2011. It could be argued that the historically high price of gasoline during 2012 ultimately restrained consumer discretionary spending by some $11 billion year-over-year (or roughly 1% of annual durable goods expenditures) — enough to make the price drop in the fourth quarter a too-little/too-late proposition for consumer holiday budgets.
– The scale of the decline in gasoline prices in 4Q-2012 pales in comparison to the price drop in the second half of 2008. In 2008 the price of gasoline dropped a whopping $2.50 per gallon at even greater consumption levels (over 10 billion more gallons consumed that year), freeing up over $350 billion in annualized discretionary spending funds for families and businesses — the equivalent of nearly 35% of annualized consumer durable goods spending.
We have always argued that the additional $350 billion in annualized discretionary spending funds in late 2008 and early 2009 had much more to do with the timing of the official end of the “Great Recession” in the real-world economy than the subsequent Federal stimulus programs (or the Fed's QE machinations, for that matter).
Thank you Rick!! So much for the recovery. As I have long maintained, our economy is suffering from massive structural issues. While Uncle Sam, in the person of Ben Bernanke, might continue to provide monetary stimulus to keep our asset markets afloat, unless and until we address the structural issues in our economy, we will languish. Don't believe me? Just look at the analysis provided by Rick Davis.
Do yourself a favor and visit Rick's site often.
I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.
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