Holiday Economy: Giving by the Rich, Not So Much by the Poor

Retail trade is a critical component of the U.S. economy, accounting for $3.9 trillion out of $21.4 trillion of the gross domestic product in 2019.  In percentage terms that is about 18% of the U.S. economy.   Retail provided jobs for over 52 million Americans in 2019.  Numbers of such magnitude require investors to pay at least some attention to the fate of retail trade.  We could say that ‘if retail sneezes, the country catches cold’ but that ago old maxim seems highly inappropriate in a year when so many people have literally become ill at just a whiff of vapor.

Despite all the anguish over losing family and friends to COVID-19, terminated jobs, and enduring endless hours of quarantine, it appears the public is ready to spend a bit on end-of-year celebration.  The National Retail Federation (NRF) has forecast an increase in year-end holiday sales in 2020 by a range of 3.6% to 5.2% over the previous year.  If they are right that would mean record holiday spending over $750 billion. 

eMarketer estimated that in 2019, on average American’s spent about $1,564 per person.  If the NRF is right about the pace of growth, then spending in 2020 could be between $1,620 and $1,645 per person.  Seems plausible enough, but given what society has been through in the last nine months, it may be a bit of an over-generalization.  The shopping network Finder estimates that around 40% of Americans could actually spend less than they did last year. 

If both Finder and the NRF are correct then before us is evidence of what many suspect already.  The U.S. economy favors a select few while the rest of the population has suffered a loss of economic power.  That follows well with the stock market indices that have shown exceptional strength in recent months.  The Nasdaq Composite has risen 42.2% so far this year.  The Mini Russell Index of small-cap companies has climbed 49.0%.  

Through the CARES Act in March 2020, the federal government injected $2.2 trillion into the economy through direct payments to taxpayers, extended unemployment benefits, business loans, and aid to state and local governments.  Stock price increases deliver wealth only to those who own stock, which represents just 55% of the population.  CARES Act monies quickly went to paying rent and buying groceries.  What little went to savings has since been drawn down.  JPMorgan Chase reported a dramatic decline in checking and savings account balances beginning in August 2020, when the extended unemployment benefits from the CARES Act ended.  There is not much left over for holiday spending.

According to the NRF analysts, about half of the holiday ‘spend’ is on gifts.  That is likely to stay the same this year.  However, the business consulting firm Accenture has been doing some surveys that suggest in 2020 most shoppers are opting out of visiting stores in favor of online buying.  Adobe reported a record 13.1% increase in e-commerce spending during the holiday season in 2019.  Expect that record to be broken in 2020, as consumers seek safety online.

Wherever the gifts come from, I would like mine to be bought by the select few whose holiday budget has expanded.  Perhaps my gifts could come from a wealthy family whose fortunes are tied to the stock market.  I might feel a little peculiar receiving something from owners of one of those companies that received CARES Act loans and then took the money for themselves.  In September 2020, the U.S. Justice Department reported that 57 people had been charged with trying to steal more than $175 million from the Paycheck Protection Program.

On second thought perhaps I will be content with the well wishes of the multitude who has not got much left in the bank and no more available balance on their credit cards.  Holiday spirit is the only gift I need!       

  

 

 

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.