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Comparing Holiday Sales: 2008 vs 2012 . . .

Posted by Larry Doyle on January 3, 2013 10:38 AM |

Did Santa’s pack look a little light this year?

Is it just me or do you also seem to think that many analysts are quick to dismiss the fact that Santa’s pack (i.e overall holiday sales) was decidedly light this year? Well, overall holiday sales are projected to have risen a disappointingly .7% year over year.

While sales may have risen, why is it that little focus is put on total sales revenue comparative analysis? With ‘discounting’ now a core part of our economy, comparing total sales revenue is a topic not often discussed. That said, let’s navigate and instead of merely comparing holiday sales in 2012 vs 2011, let’s go back and compare sales in 2012 vs 2008. Why 2008?

Well, that was smack in the middle of the recession that ran from December 2007 to June 2009 and came right on the heels of a Presidential election. With our economy having recovered (OR NOT) as reflected in asset valuations (thanks to Ben’s QE-infinity) and the unemployment rate (a charade), how did Santa’s pack look this year vs 2008?

Thanks to Rick Davis of Consumer Metrics Institute for navigating where few if any analysts care to go. Rick recently wrote the following:

On several occasions we have tried to help our readers visualize consumer behavior during the last quarter of 2012 by comparing consumer activity during the recently ended quarter with the same quarter of 2008. We chose 2008 as our comparison year because both years contain the economic distractions of a contentious presidential election — an under appreciated (if not completely unrecognized) macro-economic phenomenon.

The last quarter of 2008 is also interesting as a benchmark quarter because it also experienced rapidly falling energy prices — which in turn triggered the increased consumer discretionary spending that officially ended the “Great Recession” some six months later. However, this year also includes the economic distortions caused by Hurricane Sandy in late October and early November. The chart below is an update of our earlier charts through the end of the holiday season and calendar year (with the time frames of both years shown relative to the respective election days):

(Click here for best resolution)

In both election cycles we witnessed a significant fall-off in consumer demand that was broadly coincidental with the election. Additionally we can see the overlaid impact of “Super Storm” Sandy in very late October 2012 through the first week of November. Perhaps more importantly, as we now look back on the entire last quarter of 2012 we can see it diverge significantly downward from 2008. Some observations from the above chart are:

— Year-over-year on-line consumer demand for discretionary durable goods in 2012 was substantially weaker than in 2008 prior to the general election (and long before Sandy appeared on the horizon) — even though the 2008 election arguably occurred during the very heart of the “Great Recession.” We credit a substantial part of that weakness to the tone of the electoral rhetoric — although 2008 had perhaps more uncertainty associated with it, 2012 was fraught with economic and employment doomsday messages that could give even the most optimistic consumers some reason for caution.

— Once the incessant and depressing rhetoric from the election campaign had been laid to rest, Washington-politics-as-usual managed to create a new bogeyman: “the Fiscal Cliff.” We’re not convinced that consumer fear of the “Fiscal Cliff” impacted their behavior in any significant manner, although some will certainly argue that it was the principal cause of the weaker-than-expected holiday season. Now that the “Fiscal Cliff” has morphed into the “Fiscal Slippery Slope” we will have an opportunity to see if consumer behavior changes in any measurable way.

— As we predicted in our last newsletter, the economic “green shoots” some pundits saw within the 2012 “Black Friday” retail reports were actually (once again) only sales pulled forward from the more traditional December spending season.

And reflecting a little deeper on the last point above, when you look at our “Absolute Demand Index” for the past 60 days you can see what is perhaps the new structural norm for the seasonal holiday spending patterns of the American shopper:

(Click here for best resolution)

This chart shows three distinct peaks during the holiday season: (1) the broad first peak roughly coincident with “Black Friday”; (2) a sharper and slightly higher pre-Christmas spike; and (3) a post-Christmas peak that is at least as intense as the pre-Christmas spike. (Note that the nature of our data — i.e., on-line transactions — probably moves the pre-Christmas spike forward by several days relative to brick-and-mortar store sales as consumers compensate for shipping times.)

While the existence of the three peaks is nothing new, the shape of the peaks has changed:

— The front slope of the “Black Friday” peak has broadened substantially by moving earlier into November — as a direct consequence of retailers pushing their promotions into the weeks preceding Thanksgiving. In the above chart we are seeing the on-line equivalent of brick-and-mortar retailers moving the “door opening” specials from 8:00am “Black Friday” to 6:00am and then to 4:00am and then to midnight and then ultimately to Thanksgiving evening. In a zero-sum economy such aggressive and serially earlier promotions only pull sales forward from more traditional time frames. The danger lies in not recognizing the zero-sum aspect and forecasting improved holiday sales based on the earliest returns alone.

— We would also argue that the shift to earlier spending is the result of frugal (or “cash strapped”) shoppers becoming more savvy over the past few years and taking extremely good deals when they see them. The flip side of that argument is that retailers have now trained their customers to snap at only the most deeply discounted (and earliest — or alternately post-Christmas) promotions. The result is an interplay between cautious consumers and increasingly desperate/aggressive retailers that ultimately reduces aggregate retailer margins.

And in at least one respect the weakness of our consumer data during the holiday season surprised us: like 2008 the 2012 holiday season came on the heels of a decline in gasoline prices. Total gasoline consumption in the U.S. for 2012 is expected to be about 130 billion gallons, off about 8% from the consumption level of 2008. Using simple arithmetic (and assuming inelastic short-term demand), each penny in lower gasoline prices saves U.S. consumers and businesses an annualized $1.3 billion of non-discretionary spending. Over the past 5 years the retail price of gasoline has behaved as follows (thanks to the excellent charts provided by the good folks

(Click here for best resolution)

But this chart tells us a couple of things about the recent drop in gasoline prices:

— Although the fourth quarter drop was nice, the average price of gasoline during all of 2012 was actually at an all-time high — some 9 cents higher than 2011. It could be argued that the historically high price of gasoline during 2012 ultimately restrained consumer discretionary spending by some $11 billion year-over-year (or roughly 1% of annual durable goods expenditures) — enough to make the price drop in the fourth quarter a too-little/too-late proposition for consumer holiday budgets.

— The scale of the decline in gasoline prices in 4Q-2012 pales in comparison to the price drop in the second half of 2008. In 2008 the price of gasoline dropped a whopping $2.50 per gallon at even greater consumption levels (over 10 billion more gallons consumed that year), freeing up over $350 billion in annualized discretionary spending funds for families and businesses — the equivalent of nearly 35% of annualized consumer durable goods spending.

We have always argued that the additional $350 billion in annualized discretionary spending funds in late 2008 and early 2009 had much more to do with the timing of the official end of the “Great Recession” in the real-world economy than the subsequent Federal stimulus programs (or the Fed’s QE machinations, for that matter).

Thank you Rick!! So much for the recovery. As I have long maintained, our economy is suffering from massive structural issues. While Uncle Sam, in the person of Ben Bernanke, might continue to provide monetary stimulus to keep our asset markets afloat, unless and until we address the structural issues in our economy, we will languish. Don’t believe me? Just look at the analysis provided by Rick Davis.

Do yourself a favor and visit Rick’s site often.

Navigate accordingly.

Larry Doyle

Isn’t it time or overtime to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.


  • LD

    “It was a very complicated month, with all sorts of events that threatened fragile expectations,” said Barbara Kahn, marketing professor at the University of Pennsylvania’s Wharton School. “Online was a saving grace for some of the retailers as people shift in that direction.”

    Is that right? Interesting that Ms. Kahn references online shopping as that is exactly what Rick Davis measures.

    U.S Retailers Report Soft December Sales

  • Peter Scannell

    Average price of gasoline in 2008 was $3.60 per gallon.

    The average cost of a barrel of oil was $130 – $140.

    Average price of gasoline in 2012 was $3.60 per gallon.

    The average cost of a barrel of oil in 2012 was $90 -$100.

  • fred


    Great post!

    So according to the analysis provided, if the Fed really wanted to stimulate growth through consumer demand it would raise rates not lower them.

    I recently read a very well thought out presentation suggesting that the U.S. deficits and debt don’t matter because they can be easily manipulated by the Fed as long as the $US remains the worlds reserve currency. The Feds tools being oil prices, bank profits, and money printing.

    Excessive credit promoted by “too” easy money policy is the problem, it creates too much leverage!

    Banks normally mitigate credit risk with reserves, hedges, strict underwriting, etc. but risk management reduces profits, executive bonuses, and trade surpluses. I guess that’s where stress tests come in. Why wasn’t the Fed doing stress tests all along? Another example of regulatory failure?

    When an economy becomes overlevered it becomes vulnerable to even subtle changes in Fed policy. The Feds most powerful deleveraging and growth promoting tool in an overlevered economy, wealth redistribution.

    The mechanism which the Fed uses to enact wealth redistribution is none other than the political election process, “it’s the economy stupid”. Crony capitalism has become a necessary evil in the Feds redistribution process, from Pub to Dem and back again.

    The preferred leverage levels would seem to be a function of inflation and employment; the trick would be in deciding exactly which measures to use and the golden ratio between them. So, to the fed it’s not necessarily about the accuracy of the specific measure but whether the economy is overlevered or not.

    Wow, if I could ask Ben only one question.

    I guess, my major concern with this presentation is the Medicare gorilla in our future.

    Any thoughts LD?

    • fred

      Poof problem solved, no more debt ceiling…
      the latest “fix” making the rounds in DC involves Timmy minting a $1 trillion dollar coin and rolling it over to Benny and offering it in exchange for $1 trillion in US Govt debt currently being held by the Fed.

      As you know the Fed is currently purchasing over 80% of US Gov’t debt issuance at auction to carry out it’s QE policy.

      Guess which (hint:sitting) U.S. President’s profile will be minted on the coin?

  • fred

    As I see it, we have a real interesting confrontation setting up here. On one side you have Obama, Detroit (specifically GM and the Chevy Volt platform), and their marketing machine Hollywood (supported by OPEC$), and on the other side the forces of free market capitalism, the American consumer (who wants lower gas prices and better jobs) and quite possibly the Fed.

    What’s in the middle, the emerging American energy boom, “fracking” technology, and the price of energy.

    The most interesting dynamic here is the position of the Fed, Obama might be overestimating it’s “dovishness” and support for his administration.

    Yes, the Fed supported Obama’s election and reelection because of the need for the continued redistribution of wealth while we delever, but I am seeing signs of overleveraged asset classes and headline/core inflation pressures emerging, both warning signals to the Fed.

    The best thing that could happen to this economy, as Rick Davis pointed out in this post, would be for energy prices to come down in support of consumer demand.

    As I stated before, when alternative energy sources/products are ready for mass markets, they will be price competative not price subsidized.

    President Obama, I really don’t care about any promises you may have made to environmentalists or organized labor, do the right thing for the country and take your foot of the “brake” of our economy.

    It will be real interesting watching these east coast longshoremen negotiations and energy export port permits). This countries profit is the spread between US produced energy and global markets; every dollar in closed shop union consessions will be a dollar less in debt and deficit reduction.

    Interesting Fact: Union dues are fully tax deductible even though, according to a Wall Street Journal editorial, aprox 1/3 of the dues collected are used as direct political campaign contributions and over 90% of contributions support democratic candidates and causes.

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