Black Friday Shopping May Show Improving Economy

This article originally appeared on US News.

Black Friday marks the official start of the holiday shopping season, and retailers are ramping up their efforts by opening earlier and offering deeper discounts to attract shoppers and their dollars.

An improved economy and the financial tail winds from cheaper gas prices could influence many consumers, especially ones with lower incomes and tighter budgets, to boost their spending. That would be a healthy sign for overall growth, since the consumer spending category makes up almost 70 percent of the U.S. economy.

But even if Black Friday sales aren’t as strong as they’ve been in years past, it might not necessarily indicate a slowing economy. In fact, it could be a sign that consumers feel things are getting better.

History suggests that in a good economy, consumers have less of a reason to rely on deep discounts, says Kathy Grannis, a spokeswoman for the National Retail Federation.

“The difference between a $4 toaster and a $15 toaster isn’t that significant for a lot of Americans,” Grannis says. “But if you really are pinching pennies and you’re watching your budget, you might head out for that $4 toaster [on Black Friday].”

Data from the National Retail Federation show that Black Friday weekend shopping on a per-person basis gyrates somewhat irrespective of what’s going on in the larger economy. For example, in the middle of the Great Recession in 2008, shoppers ramped up their Thanksgiving weekend spending by 7.2 percent over 2007. But in 2013, they dialed their spending back by 3.9 percent.

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On the upper end of the income spectrum, shoppers generally are less reliant on Thanksgiving sales. “They might even sleep through the deals,” Grannis says.

And if consumers don’t show up to take advantage of Black Friday deals, it could mean a less volatile pace of spending, says Lindsey Piegza, chief economist at Sterne Agee.

“That people might not be relying on Black Friday discounts doesn’t necessarily mean they want to pay full price, but consumers aren’t backloading yearly spending between November and December,” Piegza says. “More than relying on deep discounts, retailers are being smart in pulling in consumers in the spring, summer and fall with seasonal discounts.”

Recent economic reports confirm that the American economy has made big improvements in 2014 alone. The Commerce Department reported Tuesday that growth during the second and third quarters wasstronger than in any six-month period in over a decade. The Labor Department reported earlier this month that the unemployment rate is at a six-year low and monthly job gains are the strongest they’ve been since 1999.

Add to that the fact that the average price of regular unleaded gasoline had been declining for 60 days and was at a four-year low as of Monday, according to AAA. Lower gas prices – like a tax break – enable people to spend more freely. And low-income Americans are more likely to spend their extra cash than those with higher incomes, providing another potential economic spending boost.

“At least in the short run, the drop in gas might give households the wherewithal to spend a little more. I wouldn’t expect a quantum leap – things are getting better, but they’re getting better incrementally,” says Stephen Stanley, chief economist at Amherst Pierpont.

Discount retailers like Wal-Mart and Sears are the top destinations for holiday shoppers and 96 percent of people say discounts are important in their buying decisions, according to a recent Accenture report. But 28 percent of people reported higher incomes this year compared with last, and 22 percent of people said they have greater job security this year, up from 15 percent in 2013.

The kinds of items people are buying also could be an important indicator of how successful this Black Friday will be. Researchers at the Georgetown Institute for Consumer Research anticipate a slight decline in Black Friday sales this year as consumers shop more for apparel and less for electronics.

“The vast majority of consumers are planning to spend the same or less than last year during Thanksgiving sales events. In fact, the only subset of consumers planning to spend more this year are men and high-income individuals who are planning on shopping online,” the Georgetown researchers said in a report.

Report authors Kurt Carlson and Ishani Banerji say the weekend is even more important for millennials, who have lower incomes than members of older generations but who plan to spend almost the same amount as non-millennials: $363 and $373, respectively. The generation has had a notoriously hard time financially following the economic crisis, and stands to benefit from deeper discounts.

“This implies that millennials spend a greater portion of their discretionary income on Thanksgiving shopping than non-millennials,” Carlson and Banerji wrote in an email to U.S. News. “And this implies that success around Black Friday sales hinges on attracting the millennials.”

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