Holiday Spending "Hopes" Crumble As Income Gains Stagnate

Tyler Durden's picture

But this year was supposed to be different... Early-year prospects for a revival in consumer spending quickly faded in the wake of the lagged impact of the $148 billion tax hike that began the year. As Bloomberg's Joe Brusuelas notes in the following brief interview, combined with a slower pace of hiring and sluggish wage growth, the result will probably be another in a string of disappointing holiday shopping seasons. It is increasingly doubtful that consumers have the wherewithal to meet the ambitious National Retail Federation forecast for a 3.9% increase in holiday spending to $602.1 billion. Brusuelas believes a 2 to 2.5% increases appears closer to the mark given the economic and policy challenges in place this year.

Via Bloomberg Briefs,

First, starting Nov. 1 one-sixth, or about 48 million, of individuals receiving food stamps will see a net loss of almost $16 billion in transfer payments due to cuts in the Supplemental Nutrition Assistance Program (SNAP).

 

Those in the lower two quintile of income earners, which receive the bulk of U.S. SNAP payments, will probably transfer outlays on discretionary items like electronics and apparel to inelastic non-discretionary categories such food and utilities. Accordingly, large retail operations such as Krogers, Target and Wal-Mart have reduced their holiday shopping estimates. These reductions, in part, are being attributed to the reduction in SNAP payments, the impact of the government shutdown and overall tepid job and income growth, according to the retailers.

Second, recent fundamental data on manufacturing activity, durable goods orders and hiring slowed noticeably, even before the government shutdown, during the first three weeks of this quarter. With hiring during the past three months barely sufficient to meet demographic needs, and inflation-adjusted personal disposable income up a scant 0.9 percent on a year-ago basis, it is unsurprising that both topline retail sales and sales excluding autos, building materials and gasoline, which feeds into the calculation of GDP, have slowed since June of this year, reflecting a deceleration in overall economic activity.

 

Third, the inventory buildup among retailers is also somewhat troubling given the macroeconomic slowdown and probable fiscal restraint due to policy shifts and standoffs that have characterized the second half of the year. Retailers have increased their inventories by about 6 percent compared to year-ago levels, in contrast with a 5 percent decline in 2012 versus 2011 levels.

Given the well-recognized problems with the JC Penney inventory overhang from earlier in the year, retailers such as the Gap have already begun aggressive discounting. Many have annoucned plans to open stores on Thanksgiving in order to add another shopping day to the season. While that may help bolster sales, the severe discounting will compress margins and add to bottom line woes in the quarter.

Perhaps more troubling is the likelihood that the large inventory build will spill over into the first quarter next year. There is also likely to be a repeat performance of “fiscal follies” in Washington, creating an even greater drag on overall economic growth.

While firms that employ state-of-the-art inventory optimization, such as Wal-Mart, began pulling back on orders in mid-September to mitigate the slowdown in consumer demand, most firms in the supply chain do not have that ability. Carol Lapidus, the National Consumer Products Industry Leader at McGladrey (see the clip above) noted that middle market companies that sell into retail for 2014 are getting smaller. Given where the U.S. is in the business cycle, the opposite should be occurring, which should provide a sober note heading into what will probably be another difficult holiday shopping season.

Finally, an unusual confluence of calendar quirks will result in a net decline of five selling days compared to 2012 in between Thanksgiving and Christmas. In addition, with Hanukkah starting on Nov. 28, a portion of traditional holiday spending will probably be pulled forward into late November and early December, creating a scenario where retailers may be tempted into even greater discounting.

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duo's picture

SNAP users will cut back on clothing and electronics?

20 million households looking at and extra car payment (or even house payment) to pay for Obamacare will be good for retail sales.

VD's picture

the Fed is clearly doing it's job, and it's PD master JPM will have even more biz distributing even moar EBT cards, while O[care] bronze [ie free] plans will steadily increase and the neo-fuedal USSA 'community organized' experiment is brought to its horrifying conclusion.

Headbanger's picture

YEs we can...    Completely fuck it all up!

SDShack's picture

Hope & Change was never anything but Hoax & Chains.

cbxer55's picture

Something I have not had in three years. ;-(

Everything, and I mean everything, is going up, up ahd away on prices. Yet my income remains exactly the same for the last three years. How do they expect us to bolster their income, when ours does not go up to meet higher prices on everything?

RIGHT!

This will be the second year running, that I buy nothing for no one for Christmas. And told all in the family not to buy a damn thing for me either, because I am not going to even spend the money on gas to travel anywhere, for the second year running also.

Bought no birthday presents, received none in return as well. 

I'm doing my part to starve the beast.

azzhatter's picture

We Are The One we've been waiting for! Forward! Yes We Can!

 

puts dick back in pants

nickt1y's picture

Only inflation driven upticks from now on.

q99x2's picture

At the end of the last expansion my dog could have bought a million dollar home. After 5 years of the Obama expansion my EBT is getting cut and my dog's going to have to soon fend for himself.

Bearwagon's picture

Income gains are just barbarous relics no one of real importance would give a shit about.

LawsofPhysics's picture

Define income.  Are we talking about a wage or capital gains, dividends, or interest payments?

Bearwagon's picture

Hmm, that's tricky. I'd define income as not deriving from the magical powers of a Princeton professor but from work.

Headbanger's picture

I'll take door number three!

new game's picture

i don't like double chins...

29.5 hours's picture

 

Hah! Who needs income gains in a world of credit? Full speed ahead.

 

 

SheepDog-One's picture

So people aren't going to credit-card spend like mad on a bunch of crap they don't need, just because it's the season to be ordered to do so by the banks? Well GOOD!

Bobbyrib's picture

Prediction: The holiday forecasts will be beyond bleak and the corporations will cook up the numbers to have them beat expectations and the market will rally.

Unless credit is cut off to stupid people, I don't think holiday spending will take too much of a dip. A moron with a credit card is quite the consumer.

cbxer55's picture

And IMHO, you have to be a moron to have a credit card. I will not have one period, for any reason. I either have the cash to buy what I want, or I go without it. It's worked for me for a long time. I own three vehicles outright, and two of them are NICE! The other is my all-weather beater vehicle, this way my bike and Lightning stay nice. 

But yeah, unless something major happens, the sheeple will be out crushing each other at the nieghborhood Wally World, as usual. I'll be home with some good booze, a good cigar and some popcorn!  ;-)

SheepDog-One's picture

Shaping up to be a BLIGHT Xmas for the banksters! YAY!

RSloane's picture

Wishful thinking. They'll be the first to get their cut.

fonzannoon's picture

Everyone knows by now to borrow 10k from a family member on Jan 1st with a 10% interest rate. Put it in the S&P 500 etf, then cash out now and pay the 10k back with the 1k interest and still have $1,500 left over for holiday spending. 

apberusdisvet's picture

Disposable income for the middle class is going down, down, down.  A perfect storm of Obamacare, EPA regs, and hidden taxes will ensure the final destruction of the segment of society long recognized as the "last bastion for democracy".  Welcome to the Fourth Reich; the parallels are NOT coincidental.

SheepDog-One's picture

This Xmas, I've asked family what they really need, and getting them 1 thing, that's what we're all doing. 

new game's picture

we all quit the xmas thing long ago. family get together for food and drink. biggest non-event put together by market genius under the guise of a messiah. wow, can not even believe what i just typed is possibly true...

SheepDog-One's picture

Yea it is true no doubt! We do VERY little, it's mostly for the kids, they love getting some presents which I can totaly understand I did too. For the grownups it's about a real nice dinner.

overmedicatedundersexed's picture

hanukkah spending will save christmas, after all they got the geld. I am hearing PM's are what's for hanukkah

asteroids's picture

I wonder what Dickens would think of Obozocare. Would Tiny Tim be crippled at Christmas because his familiy couldn't afford coverage?

knukles's picture

He'd be fucking euthanized

TrumpXVI's picture

That's what we do.  We actually manage to get two really nice diners out of it; Christmas eve (sister's) and Christmas day (niece's) .

Platinum's picture

Same here. One gift each. Instead of buying myself a gift, I'm just buying more metal.

RSloane's picture

Wgae suppression/loss of wages is the number one economic variable that impacts every known facet of the economy yet no one in power talks about except at election time.

Apparently it hasn't dawned on our catch of brilliant economists to notice that the less people have to spend on discretionary items, the more stagnant the economy.

Bobbyrib's picture

It's almost as if they could give a shit less about the middle class. /sarcasm.

Shizzmoney's picture

RE

Apparently it hasn't dawned on our catch of brilliant economists to notice that the less people have to spend on discretionary items, the more stagnant the economy.

Well to be fair to those economists, they aren't paid to notice this.  All they are paid to do is schill for higher/lower taxes, higher/lower government spending, and most importantly, to completely ignore Wall St fraud and its effect on the economy.

The only thing worse that the above is when the cost of food into that declining wage/income gets to 30-40%.  Then we enter into riot and civil unrest territory.

 

RSloane's picture

I agree with you. Having said that, we can stop pretending as a nation and people that anything economists say has any merit or relationship to reality at all.

The major differences I see here in food purchases is that people are revitalizing depression dish recipes and dispensing with buying ready made or prepared frozen foods. More and more people are growing gardens and learning how to prepare canned food. For a population that has been told how brilliant it is to "do it the easy way" with regards to preparing food, its a bitter pill for some to swallow. Its an entirely new mindset that flies in the face of Wall Street advertising.

TrumpXVI's picture

Yup, that's what I'm doing.  I've sort of gotten into baking as a kind of hobby.  It's much, much less expensive than my old hobbies and I get satisfaction from giving the goodies I bake away to family and friends.

By next summer I'm hoping that the raspberries I planted about a year and a half ago will be mature enough to supply enough berries for canning.  This past season they produced enough berries that for a couple of months I didn't have to buy any berries at all for my breakfast cereal.

yogibear's picture

It's what happens when Wall Street reduces labor cost while increasing prices. Fewer and fewer people to buy the crap.

Oustourcing of jobs and pressure on wages finally is hitting the street. 

Henry Ford said it well, 

"Paying good wages is not charity at all-it is the best kind of business."

 

all-priced-in's picture

What type of business do you own?

How much over "market wages" do you pay?

 

 

Shizzmoney's picture

RE

How much over "market wages" do you pay?

You can't say, as if he did own a business, that he has all this say in the currency that he would pay his workers in.

The Fed has completely destroyed price discovery...including in labor.  The USD does NOT reflect this economy.  That's why I always love the anti-minwage crew and how they always have these type of straw man arguments on what people should be paid in order to have a decent living in relation to the work they do.

How about focusing on getting control over the currency we pay people from the cabal of globalist central bankers?

all-priced-in's picture

Pretty obvious he has never owned a business before - so it is easy for him to think a business can just wave a magic wand and pay people more.

Try borrowing against your home - working 80 hours a week to get a business off the ground - then have some dick head with no concept of what it takes tell you how you should pay people.

How about we let the business owner  and the person looking for a job get together and decide how much the position is worth?

 If you have ever hired anyone you know what the market rate is for a job -  

 

therevolutionwas's picture

We had somewhat of a free economy back then without all the hidden costs each employee entails.

SheepDog-One's picture

SNAP card 'recipients'.....well, while I think that system is chock full of fraud and misuse, FUCK them for only cutting what porr people might get! Creeping 'austerity' for the lower class while the rich never feel the least bit of discomfort ever.

therevolutionwas's picture

Gotta keep that MIC healthy so's they can protect the poor folks.

SheepDog-One's picture

Clowngress cowards....they never would have gone after SNAP in the light of day, they snuck thru cuts like the bunch of cowards they are!

GetZeeGold's picture

 

 

Almost everything gets passed at night these days....err nights.

Professordoomfinger's picture

Don't worry, gasoline is getting cheaper every day according to Disney, Fox, etc.

firstdivision's picture

Well, it is, but not for the reasons that they say.  sub 3 here in my area.  Also Natty is nose diving during the last week, and power futures are falling quite quickly.  July prices seem to be hitting idiotic lows, provided we don't have an economic crisis next year.