With Christmas on Saturday, holiday spending seems like the obvious topic for this week’s newsletter. And there’s some unusual stuff going on with this season’s spending in particular – some of it encouraging, some of it troubling. Whether or not this Christmas will be truly merry (economically speaking, anyway) depends in part on your perspective.
On one hand, the 2021 shopping season has been running on all cylinders: retail spending not only shot upward over the past few months, but is in fact considerably higher than the past four years. From 2017-2020, retail spending increased by around 3-6% each year; by contrast, 2021 has seen a 16% increase.
Call it the “Pent-Up-Post-Lockdown-Determination-to-Have-a-Good-Time Effect,” I guess. This is good news in a lot of ways: the more cash people are spending on stuff, then the more that cash is moving through the economy, that stuff is getting produced, retail and manufacturing workers are getting paid, etc etc etc.
And when people are spending lots of money on Christmas gifts, it suggests that they have lots of money to spare, which is obviously a good sign. But we can’t say for sure if that’s the case based on retail sales alone, and things might be less jolly than meets the eye.
According to one survey back in the fall, over 11% of Americans – far more than previously – don’t plan to spend anything on Christmas gifts this year because they can’t afford to. Granted, data based on survey questions tends to be less reliable, so that 11% figure may not reflect how many people have actually tightened their belts that much.
But let’s say that it does. If so many more people aren’t gift shopping at all this year, how do we explain the (apparently) bustling malls and Amazon warehouses?
Well, we may find clues in two other metrics: average short-term income, and the Consumer Price Index (CPI). Comparing retail sales to average wages will indicate whether people are spending more because they’re correspondingly making more; while comparing it to CPI will indicate whether people are spending more because stuff is just more expensive.
So let’s see what happens when we put all three next to each other:
All three metrics have improved overall, but the increase in retail sales is wildlydisproportionate to the other two. And since the pandemic in particular, average earnings have actually slouched a bit while CPI has picked up speed. In other words… neither price increases nor wage increases are enough to explain this year’s shopping spree.
Not as far as most Americans are concerned, anyway. Keep in mind that the yellow and light blue curves show how average income and prices have changed, while the dark blue one shows the change in raw dollar amounts. So a ton of extra money is being spent, but John and Jane Doe aren’t the ones spending it. Neither are our poorer-than-average citizens, obviously.
So yeah, there probably are a lot more lower-income people sitting out the gift shopping this year, while the higher-income ones are buying way more than normal. Christmas 2021 is, sadly, feeling a little Dickensian… but it still depends a bit on your perspective. On one hand, this retail boom is stimulating further production and “trickling down” into workers’ paychecks, even if it’s mostly driven by the wealthy. On the other hand, it seems to confirm fears that the pandemic and lockdowns have made the wealth gap wider.