‘Another good holiday shopping season’ in 2016, economist says
Economist Michael Brown answers questions about the recently released Wells Fargo Securities 2016 Holiday Sales Outlook.
Q: Why are holiday sales important to the economy?
We always hear how important holiday sales are to retailers, but in fact consumer spending makes up nearly 70 percent of the gross domestic product. Thus, a good holiday shopping season translates into more robust economic growth for the U.S. economy.
Q: What are the key takeaways of the 2016 outlook?
Holiday sales are expected to rise 3.8 percent, compared to just 2.9 percent last year. Some of the pickup in the pace of sales has to do with higher consumer prices this year relative to this time last year. That said, it should be another good holiday shopping season for retailers.
Q: What factors influence holiday sales?
There are a number of factors. In general, when we put together our estimates for the holiday shopping season, we focus on consumer income (adjusted for taxes and inflation), current labor market conditions, and consumer confidence.
Q: How does inflation affect holiday sales?
Holiday sales and overall retail sales are reported in nominal terms. In other words, they include the effects of inflation. In cases in which inflation was low last year and picks up in the current year — as we expect to happen this year — the effect is a faster pace of holiday sales due in part to stronger demand but also due to higher prices.
Q: Why are prices up?
Prices have been gradually rising as domestic and global demand have started to slowly strengthen. We have also seen more balance in the supply and demand for oil, which has also helped to support somewhat higher prices this year relative to last year.
Q: Can you discuss the effects of online shopping?
We continue to expect electronic commerce to comprise a sizable share of holiday shopping. The National Retail Federation expects consumers to split their shopping between three main venues: department stores, online, and discount stores. In terms of mobile commerce, Braden More, head of enterprise payments at Wells Fargo, indicates that “we will see more mobile shopping and buying this year. Merchants should be ready to see more mobile online, in-app, and in-store payments.”
Q: What do you expect for holiday sales volume and spending?
The average holiday shopper is expected to spend $935.58 this year, compared with $952.58 last year — a decline of 1.2 percent. The slight pullback in estimated spending per shopper continues to reflect the cautiousness of consumers. After accounting for the somewhat higher prices this holiday season, we expect real, inflation adjusted, consumer spending to match the same pace as we saw last holiday season.
Q: What about the outlook for other types of retail sales that aren’t included in the Holiday Sales Outlook?
We expect overall retail sales to rise 4.2 percent in the fourth quarter, which if realized would be much faster than the 2-percent pace observed in the fourth quarter last year. After adjusting for inflation, we expect real consumer spending to rise 2.3 percent, matching the growth rate observed the same time last year.
Other reports are available at https://www.wellsfargo.com/com/insights/economics/.
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