November 21, 2013 by Amanda Bradford, NMSU News Center
We can expect holiday sales to rise again this year, but a shorter shopping season and uncertainty about ongoing Congressional budget battles may cut into that growth, according to a New Mexico State University researcher.
“I think we can expect a positive but flattening trend in holiday sales growth this year,” said Bruce Huhmann, an associate professor of marketing in NMSU’s College of Business.
Huhmann’s forecast for New Mexico retailers is a 1.7 percent increase in holiday sales. Nationally, he predicts a 2 percent increase in fourth-quarter sales on general merchandise, apparel, furniture and other non-auto or food retail sales. That’s a smaller increase than recent years: in 2011, sales grew by 4 percent, and in 2012, they were up by 3 percent.
“Holiday sales during October, November and December can represent up to 40 percent or more of annual sales,” he said. “These sales also produce a third of the retail industry’s profits.”
Other forecasters have a more optimistic estimate of what to expect, with many industry groups indicating a 2.4 to 4 percent increase. The National Retail Federation, the world’s largest retail trade association, expects more shoppers will make holiday purchases, but will spend less per person. The NRF projects 3.9 percent growth in holiday sales to a total $602 million, but predicts that each shopper will spend an average of $738 on gift, décor and greeting-card purchases – a decrease of 2 percent from last year.
While consumer confidence had been improving earlier this year, it took a hit during the October government shutdown, and continued uncertainty about the temporary nature of its resolution is likely to continue to have a negative impact on consumer spending over the next few months, Huhmann said. The continuing resolution that Congress enacted to reinstate government spending ends Jan. 15, and budget negotiators will need to reach an agreement by Dec. 13 to head off another impasse in mid-January. This may lead consumers to be more cautious in their holiday spending, he said.
The budget impasse has already had a negative impact – weekly retail store traffic was down 7.5 percent during the week of Sept. 29 to Oct. 5 and another 7.1 percent the following week, according to ShopperTrak, a Chicago market-research company. Consumer confidence also weakened in October – it’s up from last year at this time, but down from earlier this year. Research indicates that more consumers are expecting a negative economic future going into the holiday season than any year since 2009, according to the Expectation Index and the Reuters/University of Michigan Consumer Sentiment Index.
Huhmann said consumer confidence had, until recently, been growing, but most wages are growing very slowly, if at all. That’s leading many consumers to spend their limited shopping dollars on durable goods and big-ticket items that need replacing, rather than items like apparel or general merchandise. And while the job market continues a slow recovery, want ads for unfilled positions took a 4.9 percent dive nationally between September and October, and fell even more in New Mexico, down 7.6 percent. The state’s unemployment rate, at 6.8 percent in August, the most recent data available, is less than the national average, but New Mexico showed the second-lowest increase, 0.9 percent, in the region in job growth from August 2012 to August 2013.
One positive trend for consumer spending is a drop in gas prices, which could translate to more spending elsewhere.
“My rule of thumb is that every one-cent decline in gasoline prices leads to a $2-per-person increase in total consumer spending and a $4-per-person increase in disposable income per month,” Huhmann said. “On average, gas prices are 12 percent less than a year ago. That would usually signal a boost to holiday sales, but I still foresee these consumers diverting any available funds to replacing aging big-ticket items.”
Among higher-income shoppers, spending should be strong, Huhmann said. Record-high stock prices and more stable home prices should have these households feeling confident about their perceived wealth, an observation known as the “wealth effect.”
Consumers are continuing to shift more of their shopping online and seek out discounted merchandise. Shop.org expects online sales in November and December to grow 13 to 15 percent over last year’s holiday season, to as much as $82 billion. Those online consumers are also starting their shopping earlier. PM Digital found that nearly a third of online back-to-school shoppers – back-to-school sales are usually a good predictor of holiday shopping trends – made their purchases two months before the start of school, compared to 23.9 overall.
“I expect holiday shopping patterns to mirror these results,” Huhmann said. “Data from the past few years indicates that an increasing number of consumers are completing the bulk of their holiday shopping before Black Friday. This trend is particularly pronounced among those who predominantly shop online.”