December 31, 2003

In most households, all the wrappings are off the presents. That rush to leave one party early to get to the second one per weekend evening has maybe only one last New Year's date ahead. Hopefully, a great deal of family and individual warmth came with the season, but what does it all mean for jobs, production, employment, investment, and general economic activity ahead?

Most economists know that expectations of Christmas weighs heavily upon fourth quarter economic activity. Meeting or missing those expectations will dictate activity into the spring of the next year.

Those strong business production numbers reported for November virtually assure a 5 percent gain in fourth quarter GDP. Whether that production was sold will determine how many workers are hired as business builds up for the spring surge in activity.

My best guess is that business produced for an expected 5 percent gain in sales. But sales did not reach that target. Despite a huge internet sale of goods, up 30 percent from previous year estimates according to one source, the traditional department stores continued to sag. Furthermore, the discounters only had ordinary sales gains.

Aside from the electronics and home entertainment, the only strength was in luxury goods. Sales growth was much stronger at Tiffany's than at Walmart.

Spot surveys showed that shoppers were in the gift giving mood, but they were not taking time to buy for themselves. Christmas decorations, cards and wrappings all fell short of expectations (partially because those internet gifts were not wrapped). Code orange security also virtually assured that wrapped presents would not be carried on to planes.

Also, a growing portion of those colleague gifts were purchasing cards. By accounting convention, those cards are not counted as sales until they are used. Thus, they detracted from the sales levels at Christmas but might extend the post Christmas bargain season well into January.

Indeed, the after Christmas sales will determine how much unwanted inventory will be blocking the new orders from being received for the spring. In some areas, such as clothing and practical household items, sales might be very brisk. They were not during Christmas, so any upturn will be welcome.

However, some fundamental changes appear to be at work as well. The age level for the traditional toy is becoming narrower and narrower. After the early development toy, the dolls, action figures, and other traditional fantasy expanding toys appear to be giving way to electronics at an early age. After about 8, the computer games and play-stations replace imagination play.

Child psychologists might tell us whether this has some impact upon childhood development. It certainly encourages more independent play. It also reduces the number of toys that are being sold.

So, what should I do about the 4 percent growth in sales that were achieved when I was expecting 5.5 percent gains.

First, I must estimate how many sales have been shifted from Christmas to bargain sales because of the gift cards and those bargain hunters who buy their next Christmas the day after the last one (something I used to do.)

Second, I must consider how many lost sales will be in seasonal goods that might not have any impact upon production until next Christmas. Whatever economic conditions exist as next Christmas approaches , I probably now will shave about a percentage point off my estimates because of the shift in gift cards, toy spending, and Christmas cards, wrapping, and other seasonal factors.

Third, how much unintended changes in inventory were caused by Christmas other than in the novelty and seasonal arena. While I hope that most of the clothing will disappear before spring reduces interest in the current season's offering, I must assume that spending will not be fully restored by the bargain hunters.

In the end, I probably will cut about half a point off first and second quarter growth because of a slightly less robust Christmas than had been expected. But the big story is not that Christmas sales fell short of expectations. Rather, Christmas shopping is changing electronically, gift card wise, toy wise and novelty wise in ways that will alter Christmases yet to come.


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