Will Shoppers Make It a Merry Christmas for the US Economy?

  • December 30, 2021

  • Eyes4Research

It seems as though the word Covid will forever precede the number 19 as the pandemic, first affecting the world in 2019, is marked down as a watershed in global history. The Covid-19 coronavirus startled individuals, communities, and nations into taking a fresh look at lifestyles and values. Holidays in lockdown forced many to abandon get-togethers, traditional celebratory meals, gifts, and entertainment, impacting the national economy as rarely seen before.

With the easing of restrictions going into Cyber Week/Black Friday and Thanksgiving, and heading towards the 2021 Christmas/New Year festivities, the importance of holiday spending is again the focus for assessing the health of the US economy. Consumer purchasing is the single most important driving force in the economy – increasing manufacturing and production, creating and maintaining high employment levels, and thus sustaining a buoyant economy. An estimated 70% of Gross Domestic Product is made up by consumer spending with 30% of that figure occurring in the November/December holiday months.

This being so, the importance of holidays to the economy cannot be understated. This boom season generates demands for goods and services, creating many jobs in production, distribution, retailing, restaurants, entertainment, and travel. Some economists may point out that the increases in spending will be balanced by thrifts in January and February, but these are the coldest months in most states. While some retailers may have to rely on the boost of the preceding holiday period, sales in heating and fuel, gasoline, winter breaks, and warm apparel will remain high. In years when holiday sales are good, even a lean New Year will be well tolerated.

Before the unique pandemic phase, the holiday season (beginning in October and reaching a crescendo in the weeks just before Christmas) represented one-fifth of all yearly retail sales and around 30% of individual retailers’ annual revenue. Despite Covid restrictions, holiday sales in 2020 still totaled $1.2 trillion, with increases anticipated this year at around 9%. Even before Covid, the rising star was e-commerce, with over half of holiday purchases and bookings generated by online purchases. The pandemic temporarily skewed all figures but digital shopping has continued in the ascendant and shows no signs of falling off over the 2021/2022 winter season. However, the pandemic has undoubtedly made an impact and continues to surface problems.

Supply chain and inflation woes

Marketing may be affected by many factors, but the human response to national or international events surely has to be factored in. During lockdown, people learned to be creative in dealing with the situation, including working from home and ordering everything for their daily professional, personal, or family needs online. Consequently, e-commerce skyrocketed but with it came supply and distribution blockages and shortages. As the pandemic spread, even e-commerce giants like Amazon began to face problems. Already this year, shoppers have been buying early, anticipating further supply chain problems and rising prices.

The other two big issues this holiday season, along with supply chain concerns, are sticker shock and inflation. Inflation is running high and sticker shock is threatening to limit consumer spending, with some financial advisors warning that this will be a very expensive Christmas. So far, this does not seem to have deterred consumers. During the pandemic, many people were able to put away savings from home-working and limited social life. As the Delta variant of this devastating virus seems to have been abating, job vacancies and attempts by employers to lure back workers have forced higher wages and better conditions for many. Inflation is also fueling demands for higher salaries. Benefits have added to funds available for bumper spending this year and, perhaps, most significant of all is the national feeling of being free to share the festivities with friends and family again. The e-commerce boom continues but many shoppers are enjoying the ability to buy at brick-and-mortar stores too. With the vaccination campaign in full swing, restaurants and hotels are re-opening and travel is once more part of the holiday budget for communities emerging from the Covid nightmare.

With inflation escalating prices in almost all goods and services across the board, there are notes of caution underlying this holiday mood. Basic food bills are up by about 12% with the US Department of Labor indicating an overall increase in consumer prices at 6.2% over the last year. Already, consumers may be shunning expensive goods like autos and domestic appliances for cheaper items or less expensive models. Looking forward, there may be a sharp pullback after Christmas with smaller retailers benefitting against luxury goods providers. A local study in a California district finds shoppers already cutting back on regular groceries as sticker shock starts to bite into the weekly bills. One woman claimed that her food and groceries had more than doubled in price.

President Biden has taken steps to address the supply chain problems with ports operating at all hours to clear backlogs but nobody can predict with accuracy how the pandemic will affect the situation next year. Overseas, supplies may fail to keep up, national shortages in trucking staff may hold up deliveries, and another wave of the virus may ground the nation again. Those encouraging figures for travel, restaurants, and entertainment may take another nose-dive. For now, consumers are spending and e-commerce is likely to continue as a buffer against any downswing.

Conclusion

No question though, Covid-19 is going to leave an indelible mark – lifestyles have changed. For so many people, the effects of the pandemic have meant suffering and loss, and it is not possible to be joyful over an emerging new era with these tragic facts in mind. However, the human spirit that has prevailed throughout this grim phase in history will doubtless grasp the positives and adapt to new ways. Holidays will remain enormously important to the national economy.

References

  • Bhattarai, Abha, and Aaron Gregg. 16 November 2021. “Americans Are Unhappy About The Economy But Still Spending Big”. The Washington PostOnline. Accessed December 4, 2021.
  • Juarez, Leticia. 12 November 2021. “Overheated Economy Fueling Inflation Ahead Of The Holidays As Shoppers See Higher Cost Of Goods”.  ABC 7. Online. Accessed December 4, 2021.
  • Light, Larry. 28 November 2016. “Why Holiday Shopping Is So Important For The U.S. Economy”. CBS News. Online. Accessed December 4, 2021.
  • Meyersohn, Nathaniel, and Anneken Tappe. 31 October 2021. “This Will Be An Incredibly Expensive Christmas. Shoppers Don’t Care”. CNNOnline. Accessed December 4, 2021.
  • Mutikani, Lucia. 16 November 2021. “U.S. Retail Sales Surge As Holiday Shopping Starts, Brightening Economic Outlook”. ReutersOnline. Accessed December 4, 2021.
  • Staff writer. 2 December 2019. “Exactly How Important Is Holiday Shopping for the U.S. Economy?”. Castus. Online. Accessed December 4, 2021.