While the common wisdom, espoused by any and all commission-taking wealth manager looking to up his AUM, is that Black Friday sales (and the anecdotal evidence from self-referential store-owners and CEOs) can tell us about the trend in the economy or they offer some divine extrapolated insight into the year's final sales number. The truth; you can't handle the truth. As BofAML's Michelle Meyer notes, there is no correlation between total holiday sales and Black Friday sales over the past seven years. In fact, we believe that not only are the early estimates of Black Friday sales insignificant, they can send misleading signals. More fundamentally, Black Friday sales can either signal a healthy consumer or a desperate one, depending on the state of the economy. The bottom line is that we advise fading the Black Friday sales reports, but paying attention to the aggregate holiday sales reports.
Via BofAML: Black Friday = White Noise
Although not in the spirit of the holiday season, we are going to throw some cold water on some of the hype surrounding Black Friday sales. After the Thanksgiving weekend, the press goes wild reporting on the early estimates of Black Friday sales and its signal about the health of the economy. The argument typically goes as follows: about a third of retail sales occur during the holiday season and since consumer spending is 70% of GDP, Black Friday sales can tell us about the trend in the economy. We disagree. In fact, we believe that not only are the early estimates of Black Friday sales insignificant, they can send misleading signals. Instead of focusing on Black Friday sales, we think it is best to wait for more comprehensive data regarding total holiday sales.
Biased and irrelevant
We find that Black Friday sales have no correlation with total holiday sales over the past seven years. This is because there is likely a sampling bias from one year to the next as retailers have steadily expanded the amount of time shoppers can receive Black Friday discounts. This is exacerbated by the steady shift toward internet shopping, which is likely difficult to account for. More fundamentally, Black Friday sales can either signal a healthy consumer or a desperate one, depending on the state of the economy. Discounts during the Black Friday period can effectively “pull forward” sales from the rest of the holiday season. In particular, when economic conditions are particularly challenging, shoppers may be more inclined to search for discounts. This could explain the divergence in 2008 where Black Friday sales jumped higher while holiday sales declined.
Wait for the aggregate number
While the early read from Black Friday is not informative and at times misleading, the reports of total holiday sales should not be dismissed. There are a number of organizations that report holiday sales on a timely basis, including the National Retail Federation (NRF), ShopperTrak and the International Council of Shopping Centers. In this analysis, we focus on the NRF data since 2000 (the longest history available). We find that the NRF measure of holiday sales has a good correlation with certain components of retail sales.
The bottom line is that we advise fading the Black Friday sales reports, but paying attention to the aggregate holiday sales reports. This is useful as an early read for predicting certain components of retail sales. However, once we have the actual retail sales report, we no longer need to focus on just holiday activity to understand the trend in consumer spending.