By Jo Craven McGinty
Black Friday--the traditional opening day for holiday
spending--is nearly here, and with it will arrive forecasts of
total holiday sales. The predictions are important because they
signal the strength of the retail sector, an important driver of
the nation's economy, and guide investor decisions. But Black
Friday spending isn't the best indicator of future sales.
"Traditionally, people think that whatever happens on Black
Friday sets the scene for the strength or weakness of sales for the
whole holiday season," said Paul Dales, an economist with Capital
Economics, a research company based in London. "It's an okay
relationship. Sometimes it works. Sometimes it doesn't."
Holiday sales are generally defined as retail sales made in
November and December. Last year, those months accounted for almost
20% of sales for the entire year. And if you include January--when
retailers offer additional sales and people spend the gift cards
they received in December--the figure climbed to about 27%.
By the time the season starts, retailers have made several key
decisions.
"The stores have already made their bet," said Steve Blitz,
chief economist with ITG, an investment management firm. "What they
have in store, how much they have in inventory, and the number of
temp workers they've put into the stores. Black Friday tells them
whether they made good decisions or bad decisions."
To gauge how well Black Friday sales reflect all holiday sales,
Mr. Dales and his colleague Andrew Hunter charted 20 years of
year-over-year figures for Thanksgiving week against year-over-year
sales for November through January.
If Black Friday sales were a reliable forecaster of all holiday
sales, the trends would match. But Black Friday sales bounced up
and down like an erratic heartbeat.
In 2004, Black Friday looked weak compared with all holiday
sales. The following year, the two looked similar, only to diverge
the year after that. In 2008, Black Friday sales looked stronger
than all holiday sales. And in the last two or three years, the two
trends again matched.
The correlation is likely to grow worse because more consumers
now shop online, and bricks-and-mortar stores encourage shoppers to
start spending earlier. Last year, many opened on Thanksgiving Day,
and this year, Wal-Mart plans to offer holiday sales the entire
week of Thanksgiving.
"The question is are you just pulling from the future months or
are you prompting households to spend more?" Mr. Dales said.
One way to get a better handle on the question is to look at
other measures.
One that tracks well with total holiday sales, Mr. Dales said,
is year-over-year estimates of consumer spending collected by the
Gallup Spending Survey, which asks respondents how much money they
expect to spend. Gallup collects the data in a telephone survey of
a randomly sampled adults living in all 50 states and the District
of Columbia. The sample is weighted to correct for selection bias
and to match national demographics.
While the Gallup findings have tracked fairly well with overall
sales, not all consumer spending surveys are equal.
Barry Ritholtz, a wealth manager who writes about the economy,
regularly takes aim at the National Retail Federation's consumer
survey, which often indicates large increases in spending over
Thanksgiving weekend.
"Humans are notoriously bad at predicting their own behavior,"
Mr. Ritholtz said. "They don't remember what they did, they don't
know what they're doing, and they have no idea what they're going
to do in the future."
The National Retail Federation's estimates of total holiday
sales, which tend to be more modest, don't use the results of the
federation's consumer survey.
Another potential predictor of overall holiday sales is retail
hiring leading into the holiday.
Mr. Dales and Mr. Hunter plotted the number of retail workers
hired in October against sales.
The employment figures, from the U.S Bureau of Labor Statistics,
are seasonally adjusted to strip out normal increases in holiday
employment to isolate increases attributable to the strength or
weakness of the economy.
In effect, holiday hiring represents the retailers' expectations
of what lies ahead, and the figures, though not perfectly
correlated, track pretty well with holiday sales over the last 20
years. Years when retailers hire strongly in October generally saw
strong holiday sales, and years when employers hired fewer
temporary workers disappointed.
According to Capital Economics, this year's retail hiring
figures and the Gallup survey results forecast an increase in
holiday spending of about 6%. That, combined with growing
employment and rising incomes, suggest consumers will be ready to
part with their cash this holiday season.
It just might not happen on Black Friday.
Write to Jo Craven McGinty at Jo.McGinty@wsj.com
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