Holiday Sales Gains Don't Mean Much to the EconomyMajor retailers are reporting healthy gains in November revenues, adding more evidence that holiday sales will be significantly higher than last year. The National Retail Federation estimated that the kickoff of holiday shopping season on Black Friday weekend gained a very respectable 9.2% to $45 billion. Overall, retail sales are expected to climb between 2.3% and 4% this season.

Those rising retail sales figures are adding to the list of positive economic developments coming as 2010 winds down, but how important are holiday sales in the larger scheme of things?

Though holiday retail sales numbers are often held up as proxies for the U.S. economy as a whole, the reality is that they account for a very modest slice of our economic activity. The 2010 U.S. GDP is projected to be about $14.7 trillion, while total holiday retail sales were $504 billion in 2009. That means holiday retail sales are about 3.4% of the U.S. GDP.

Furthermore, holiday revenues don't really change much from one year to the next. According to the National Retail Federation, holiday season sales dipped by $21 billion decline in the recessionary 2008 season, but that was just a 4% decline from 2007. By contrast, 2009 saw sales rise by $10 billion, about 2%. Another 2% gain this season would return holiday sales to pre-recession levels.

Here are the annual statistics:

2007: (pre-recession) Holiday sales: $516 billion
Holiday sales as percentage of annual retail sales: 19.5%

2008: Holiday sales: $495.5 billion
Holiday sales as percentage of annual retail sales: 18.6%

2009: Holiday sales: $504.8 billion
Holiday sales as percentage of annual retail sales: 19.4%

In a $14.7 trillion economy, a $10 billion to $20 billion rise or fall is about a tenth of a percent -- not big enough to move the needle one way or the other. And since the Black Friday weekend sales are less than 10% of the entire seasonal total, Black Friday may not be as robust an indicator as many assume.

Retail insiders also report that the period between Dec. 15 and Dec. 25 accounts for 40% of holiday business -- another reason not to read too much into Black Friday weekend numbers.

What Does a 4% Rise in Holiday Sales Really Mean?

Let's say that 2010 holiday sales gains come in at the high end of estimates: a 4% rise. Based on 2009 sales of $504 billion, that 4% increase would come to $20 billion -- $4 billion above the pre-recessionary level reached in 2007. So if the forecasts of analysts are relatively accurate, then 2010 holiday sales might rise $20 billion to $524 billion.

But according to the Bureau of Labor Statistics' inflation calculator, it takes $1.05 to buy what $1 bought in 2007. That 5% increase means that, adjusted for inflation, sales in 2010 would have to reach $541 billion to truly match the 2007 total.

So, while it would be welcomed by retailers, that 4% rise in sales wouldn't quite lift inflation-adjusted sales to the 2007 level: That would require a 7% or 8% gain.

Importance of Retail Overstated

We often read that consumer spending is about 70% of the economy (some analysts say it is more like 60%), but the retail sector is only the "value added" part of retail sales. If we look at the entire retail sector of the economy, we find that it is 7.9% of the GDP, compared to a 21.4% share for the finance, insurance and real estate sector.

Given that holiday retail sales are a modest 3.4% of the U.S., economy, and that a 4% rise of $20 billion is a wafer-thin slice of that modest amount, it seems the importance of holiday retail sales in the economy is being overstated.

If we really want to assess the health of the economy, perhaps we should focus on the numbers that reflect the big picture, such as employment, capital investment and personal incomes.

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nlfrm

Just because it not the ONLY barometer, does not mean it not A MEASURE that can used to PREDICT a good amount of what can HAPPEN and BE LIKELY TO HAPPEN! http://www.QuantRec.com

December 05 2010 at 10:13 AM Report abuse +1 rate up rate down Reply
juliettepup

These numbers are a smokescreen....I am living it. I have not bought a single christmas gift since 2003 due to financial problems. This year I bought 2 gifts totalling $50.00, and that's all. But I did that at the expense of eating in the month of December. No food until January in exchange for buying two christmas gifts. Does that indicate I am doing better...I think not because I am hungry and cold...Mr. President.

December 04 2010 at 6:25 PM Report abuse +1 rate up rate down Reply
nconstinc

Oh shut up! Its good news for once let us enjoy it!

December 04 2010 at 11:21 AM Report abuse rate up rate down Reply
ksmwtm

Both 'parties' talk ADJUSTING a bad Fed. Tax structure. Look at the minimum for entitlements, required spending (govt. employees, etc.)total up how much tax money must be collected, THEN look at what we want & are willing to pay for & Send earners their FAIR share bill. Do NOT collect tax money & then decide who gets what! CONGRESS is NUTS! Good article Mr. Smith.

December 04 2010 at 10:36 AM Report abuse +1 rate up rate down Reply
josephdierkes

It's interesting to note that, although "Bah, Humbug" (taken from Dicken's 'A Christmas Carol'), is in the headline, no mention of the word "Christmas" appears ANYWHWERE AT ALL in this article . . . . yet the word "holiday" appears over 30 times . . . . are we being "Politically Correct"? . . . why are we so afraid to say "Christmas Shopping", etc.???

December 04 2010 at 10:30 AM Report abuse +3 rate up rate down Reply
1 reply to josephdierkes's comment
ksmwtm

Politically CORRECT--ain't that one of them oxy-morons? Hows about ILLEGAL immigrants---Immigrants imply LEGAL so maybe Alien is more approprate. Whoner if "Congress is nuts!" is correct---it shore is political.

December 04 2010 at 10:41 AM Report abuse rate up rate down Reply
wjn25624

giving the wealthy tax cuts will create jobs according to john boehner and his caucas.the only thing he doesnt tell you they are in china and mexico or india.but they are his rich buddies and thats where he gets his politcal contributions.

December 04 2010 at 8:24 AM Report abuse +6 rate up rate down Reply
Iselin007

We need jobs that don't rip off taxpayers like retail

December 04 2010 at 12:09 AM Report abuse +3 rate up rate down Reply
Iselin007

Retail depends on taxpayers for public assistance for it's low wage workers!

December 04 2010 at 12:08 AM Report abuse +4 rate up rate down Reply
1 reply to Iselin007's comment
nconstinc

I would gladly pay more if they deprorted the illegals and hired Americans for more money!

December 04 2010 at 11:23 AM Report abuse +3 rate up rate down Reply
Bill

The problem is they hype these holiday sales and people over use credit cards way beyond their budget. Then when hard times hit like they will they won't be able to make the payments. Then the tax-payers will be footing the bill again. Holidays are only short burst sales and the government should not be using them to paint a rosey picture. Factories are sitting idle in this country and alot of them are closed for good. If you look at what is being sold in the stores, 95% 0f the products are made in a foreign country. So how does this add to our economy because if it reads made in China, Mexico, or some other country that is benefitting them not us. I just love these government fudge figures.

December 03 2010 at 9:01 PM Report abuse +10 rate up rate down Reply
dccwest

WHen you consider at the pain that many are suffering this holiday season, it should be clear that ending estate taxes and extending tax cuts for the wealthy are the top priorities. Signed Jon Boehner

December 03 2010 at 6:23 PM Report abuse -1 rate up rate down Reply
1 reply to dccwest's comment
erfour4

Why extending the tax cuts for the wealthy?When it didnt work and we still lost jobs that paid a living wage.Just like if shopping is up and most everthing is imported ,who is it really helping?

December 04 2010 at 9:43 AM Report abuse +1 rate up rate down Reply