Reports of a buildup of inventory at U.S. retail raise the prospect of a heavily discounted Christmas shopping season like 2007. Retailers were planning on a boost in consumer spending this year that hadn’t yet materialized in the third quarter. There are conflicting reports about what has happened in the first half of the fourth quarter. In one survey, for example, consumers indicate that they plan to spend more this holiday season than the last. Falling motor fuel prices also ought to translate to easier consumer spending. Retail reports so far show a reduced level of activity compared to last year’s holiday shopping, though, suggesting that consumers may simply be forgetting to shop.
If boosts in employment and consumer confidence are not immediately translating into consumer spending, it could be a reflection of time pressure. An increase in working hours means consumers have less time to go shopping, even if they have the money to spend. This effect is particularly pronounced among shoppers who try to coordinate their schedules so that they can go shopping together. The savings trend also probably shows that consumers are still thinking about getting out of debt, even if that is a slow process.
What we’re likely to see is steeper discounts in December to try to move out more seasonal merchandise. The 2007 discounts, however, didn’t work to boost revenue at retail. Retailers that can save some of the inventory overhang into next year will do better than those that must sell everything regardless of the loss they end up taking.
It’s rare that the combination of reduced fuel costs, a boost in income, and high consumer confidence doesn’t lead to an increase in spending. Most economists looking at this picture seem to want to say that consumer sentiment must not be quite as strong as the latest surveys suggest, but that explanation will fall apart soon if it’s not confirmed by new surveys. For now, it’s one of those what’s-going-on situations that occur all too often in economics, and we’ll continue to watch the new data releases and try to figure it out.