No gift for economy, as holiday spending set to dip
(MoneyWatch) Expect shoppers to pinch their pennies this holiday season.
More than half of Americans plan to spend about as much as they did last year during the busy shopping season, while 37 percent think they will cut back, according to a new CBS News poll. The pressure to buy also appears to leave some people cold: Half of those surveyed say they "dread" holiday shopping.
Such attitudes, coupled with the sluggish economy, may help explain why many forecasters expect holiday spending to be weak this year. IHS Global Insight predicts retail sales between Thanksgiving and the end of the year to rise 3.2 percent, down slightly from last year and the weakest rate of growth since 2009. A new Reuters-Ipsos poll also shows that most Americans plan to spend less for the holidays this year than they did in 2012, with consumers especially eager to land big discounts.Some big retailers are already feeling the pain. Shares of Best Buy (BBY), the nation's biggest seller of consumer electronics, slid 11 percent Tuesday after the company said it would roll back prices for the holidays to compete with Wal-Mart (WMT) and other brick-and-mortar and online vendors offering deep discounts for the holidays.
"[I]f our competition is, in fact, more promotional in the fourth quarter, we will be too, and that will have a negative impact on our gross margin," Best Buy CFO Sharon McCollam told analysts in a conference call yesterday to discuss the retailer's latest financial results.
In recent years, tepid holiday sales would have spurred concerns that the already feeble economic recovery was starting to wobble. But if there's a reason to give thanks this year, it's that the economy looks less vulnerable to a late-year swoon.
Job growth surged in October, defying predictions that last month's 16-day government shutdown could upset the labor market. The latest readings of consumer spending also show that, despite any holiday blues people may be experiencing, they're at least not snapping shut their pocketbooks. Retail sales rose in October by their fastest rate in four months, according to the U.S. Commerce Department, as consumers spent more on cars, clothing, furniture, sporting goods and health, among other products and services that saw an increase.
"The demise of the American consumer has been wildly overstated," said Stuart Hoffman, chief economist with PNC Financial Services Group, in a research note.
Meanwhile, the economy looks set to pick up speed in the new year, "We do see acceleration and growth ahead through 2014 and lasting into 2015," said Doug Handler, chief U.S. economist with IHS, in a presentation to clients.
Several factors are likely to propel economic growth in 2014. Perhaps most important, the drag on growth from higher payroll and other tax hikes that took effect earlier this year are expected to fade, while government spending cuts are likely to ease. Consumers and business are also less burdened by debt. And although the recent uptick in mortgage rates has dampened home sales, experts predict that the housing sector will continue to rebound next year and help drive economic growth.
Of course, it remains to be seen if such tailwinds will lead to a sustained pickup in job-creation. The nation's unemployment rate, at 7.3 percent, is likely to remain above 6.5 percent by year-end 2014, according to consensus estimates. And while corporate profits are at an all-time high, wage growth remains anemic, sapping people's purchasing power and suppressing broader economic demand.
"Without consumer spending, it's impossible to sustain any kind of meaningful GDP growth," Handler said.
That would also make it tough to provide the festive send-off to 2013 that Americans hope will lead a happy new year.