Frugal But Eager Shopping Could Drive Economic Recovery
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Shoppers were out in force over Thanksgiving weekend, even as they remained cautious in their purchasing choices. These eager yet wary consumers, longing for the days of unrestrained shopping but still shell-shocked from the recession, could help drive an economic recovery.
A record number of shoppers went to physical and online stores over the weekend, and they spent slightly more than last year. Experts say the results are part of a larger trend that's been developing over the past several months: Consumers are spending because they want to, and, more important, because they can.
The worst economic meltdown since the Great Depression has left people cautious, occasioning talk of a New Thrift, but the beginnings of real economic improvement have recently bolstered consumer confidence. Fear has given way to a tempered frugality. Consumer spending, which accounts for about 70 percent of economic activity, bodes well for the broader economy.
The weekend after Thanksgiving, typically the busiest shopping weekend of the year, saw about 212 million shoppers, up 8.7 percent from last year's 195 million, according to the National Retail Federation, which logged the busiest holiday weekend since at least 2004.
The average consumer spent $365.34, up 6.4 percent from the same period last year, the NRF added. In physical stores on Black Friday itself, traffic increased 2.2 percent, and sales were up 0.3 percent, according to ShopperTrak.
The bit of good news comes as the broader recovery remains sluggish. As unemployment is stuck at 9.6 percent, jobs simply do not exist for four out of every five unemployed Americans. During the second quarter of this year, the net worth of households and non-profits dropped 2.8 percent, erasing two quarters of gains.
But retailers staved off a weak turnout by offering deep discounts. This holiday season, shoppers want bargains. They want to spend, but they want to get value for their money. Retailers are more than happy to accomodate.
"Consumers seem to be in a spending mood after a long drought. That's a definite change for the positive," said Sung Won Sohn, an economist at California State University, Channel Islands. "That doesn't mean they are opening up their wallets all the time. They're still very, very bargain-conscious."
That, he added, has put retailers in a pragmatic mood. "In this tough environment, retailers are willing to cut prices," he said.
Sohn is now anticipating the "first decent holiday shopping season" since the economic crisis. His prediction, he said, is based not merely on the weekend's data but also on steadily increasing income and sales over the past few months. Even as consumer confidence remains tepid, income has edged up slightly. Auto sales, an indicator of optimism, were relatively strong last month. Consumers, it seems, are starting to feel more confident, and they're starting to spend money they actually have.
"You haven't seen credit cards, debt going back up. You haven't seen a lot of leveraging," said Stuart Hoffman, chief economist at financial services firm PNC. "They're actually spending money they earned, rather than money they borrowed."
That distinction could prove crucial. After years of relying on stock market winnings and loans against homes to enable spending far beyond incomes, millions of Americans must now limit their spending to what they bring home from work. If spending can continue to grow on the strength of wages, that could embolden employers to finally hire larger numbers of people in a bid to harvest further sales.
Although the unemployment rate remains high, Hoffman is looking ahead to the Labor Department's snapshot of the job market for November-- to be released Friday-- and expecting to see significant gains. Retailers have been hiring temporary holiday workers -- Best Buy, for instance, hired about 29,000 seasonal workers in the U.S. -- and Hoffman expressed confidence the rosier jobs picture would last.
"Temp hiring is part of the story, but I think it's broader than that," he said. "I think there's some full-time hiring, and some hiring certainly outside of retail."
Jobs, Sohn noted, are the key to a recovery.
"Employment is still lousy. Therefore retail sales will not be going through the ceiling as they have in the past," Sohn said. "Consumers are in a better spending mood, but that doesn't mean we're going back to the good old days. Overall we're talking about a fairly anemic, sluggish economic recovery."
Still, both Sohn and Hoffman said things are looking up. Hoffman said he predicts that spending during the entire holiday season could reach a 3.5 percent increase over last year's.
Retailers, for their part, are banking on the holiday season, which in some industries, such as toys, can account for up to 80 percent of the year's sales, according to Sohn's estimate.
At around 10:30 Friday morning, Mike Vitelli, president of Best Buy Americas, noted the "hopping" activity at the Best Buy in New York City's Union Square, which had been open since 5 o'clock that morning.
"It's been going strong for the whole time I've been here," he said. "It's been humming."
Vitelli added, though, that Black Friday, and even the whole weekend, was just one part of the holiday season. In Best Buy's case, the season started in early November, when the company began offering deals to members of its loyalty program. The bargains, such as free shipping for most online purchases, will continue, Vitelli said, through December.
"It's a whole weekend, and a whole holiday season. It is not a day," Vitelli said. "This is kind of the exciting start to that period."
Vitelli contended that the consumer electronics his store sells are not luxury items. Rather, he said, they've become necessities. Even in tough economic times, consumers need laptops, smart phones and even high definition televisions (some of which can connect to the Internet) for business and personal use.
"A lot of the products that we sell are becoming essential. And what I mean by that -- not trying to be flippant, but -- notebooks and smart phones are probably the most essential products that some people have," Vitelli said. "People are making decisions. It's not as if people are buying things frivolously."
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First Posted: 11/29/10 10:35 AM ET Updated: 05/25/11 07:15 PM ET