Friday, December 26, 2014

Damage Assessment and a Warning

The day after the Christmas holiday, many may be taking the day off.  What else would they be doing but toting up the damages to their bank accounts from entertaining, presents and wrapping.  Do not forget ‘self-gifting.’  The Christmas Price Index originated by PNC Bank, suggests the calculator could display a rather disheartening result.

PNC has been tracking the cost of the Twelve Days of Christmas, the time honored holiday song that begins “On the first day of Christmas, my true love gave to me a partridge and a pear tree....”  The twelve days of gift giving mostly involves a menagerie of animals and entertainers.  For Christmas 2014, the gifts cost an estimated $27,673, reflecting a 1% increase over the previous year.  The most expensive of the gifts are the nine ladies dancing at $7,552.84.  Seven swans-a-swimming would have set you back $7,000 and those lords a-leaping another $5,348.24. 

What I think is most interesting about the PNC Christmas Price Index is the one price that did not change.  Eight maids-a-milking was priced at $58 in 2014, unchanged from the prior year.  PNC regards young women milking cows as unskilled workers and since minimum wage has not changed since 2009, the price of that gift has not budged a bit in five years.  Those happy-go-lucky lords were the only ones of the professional entertainers in the index to win a wage increase  -  2% over last year. 

The same phenomenon seems to be at play in the greater U.S. economy.  Lower wage, less skilled workers are at the mercy of the economy while more skilled workers with high profile positions appear to command greater negotiating power.

The Christmas Index offers additional insight into our economy.  The greatest increases in the index related to food.  Geese-a-laying skyrocketed by 71% from $210 last year to a whopping $360 in 2014.  Of course, the gift ideas of most people are a bit more mundane:  sweaters, ties, gloves.  The class holiday gift  -  chocolates  -  was probably dramatically higher this holiday than suggested by the PNC index.  Cocoa prices rose by as much as 18% in 2014 over the prior year. 
While the Federal Reserve, Congress and the White House keep telling consumers that there is no inflation, there is little doubt that the cost of food has shot through the roof.  If you are a milk maid the ever rising cost of eating could put you into the unenviable position of having to choose between eating decent food or sleeping under a roof.  Indeed, the number of homeless people in the U.S. increased 7% in 2013 and mid-year data suggested the country would set records in2014 for the number of people without homes. 

The cost of Christmas may not seem to have increased by much, but those unusual gift ideas present an interesting forewarning.  We have a growing poverty class at the expense of a financially secure middle class.  Our upper class that is leaving both behind.  This does not bode well for economic growth and security since it is household formation by the middle class that has historically driven our economy.  So next year let’s ask our family and friends to skip the leaping lords and bring instead ‘ten consumers-a-shopping.’

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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