Economy

America's Christmas Recession

Holiday gift sales usually drive the annual profits for retailers. After 10 months of losses, the surge in demand pads their bottom lines. Many retailers desperately need strong sales in November and December. Large and relatively healthy retailers like Target and Macy’s should survive what may be low consumer demand. While their earnings may disappoint, as they have in the recent past, their balance sheets will carry them. Other retailers, including Bed Bath & Beyond, could be ruined.

Anticipated retail success at the end of each year has two major effects. Inventories rise to meet demand. This year, many retailers already have bloated inventory. Demand for new goods should be slack. This means companies in the supply chain will have sales problems, which will undermine what is usually a strong sales period. They need fewer workers as well. It is a domino effect.

Hundreds of thousands of jobs get created by the need of retailers to staff for surges in consumers and expanded hours. Any anticipation that demand will soften means many of these will not be hired. Their loss of income in turn will prevent them from being consumers. No jobs means no consumer demand, which means retail trouble.


Ultimately, the ability of Americans to shop is based on whether they feel rich or poor. Inflation has eroded buying power, which means “poor” is the more likely frame of mind. Consumer confidence has been low for most of the year. Nothing on the horizon will change that. People will need money for essentials, particularly housing and energy. These people will not be shopping.

A large part of economic optimism, or lack thereof, is the value of the American home. People with high home equity essentially have large bank accounts. Home prices have begun to slacken. In some parts of the country, they have begun to drop. Even anticipation of a falloff in price will cause homeowners financial anxiety.

Merry Christmas!

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