Officially, the holiday season will start tomorrow when we gather together to celebrate Thanksgiving. And as the U.S. counts blessings, retailers’ countdown to the busiest shopping season ends. The retail space is brimming over with optimism this time as the economy stepped up 3.9% during the third quarter of 2014, according to the “advance estimate” by the Bureau of Economic Analysis that fared better than the previous estimate of a 3.5% rise. This simply means that Americans will have greater purchase power this time.
Let’s find out what led to the optimism in the market.
Plenty of Good Reasons
The data reveals how strongly the U.S. economy is rebounding despite growing global uncertainty, and rightly setting the stage for a cheerful holiday season. Higher business investment and improved consumer spending laid the foundation for a strong GDP. Gradual recovery in the housing market, strengthening manufacturing sector and improving labor market also favored the economy. Consequently, the U.S. economy returned to the growth trajectory in the second quarter, when it increased 4.6%, after falling 2.1% in the first quarter.
The Federal Reserve found this bullishness a good reason to conclude its monthly bond buying campaign, and is now contemplating on raising interest rates. Analysts, however, still believe that the Fed will not be in any rush to increase the near-zero interest rate for fear of derailing the much-awaited recovery with a sudden rise. Market experts see the encouraging economic data finding reflection in interest rates sometime in mid 2015.
Consumer confidence – a key determinant of economic health – also improved significantly, reaching the pinnacle this November. The data released by the University of Michigan and Thomson Reuters showed that the consumer sentiment index buoyed up to 89.4 in November from the October reading of 86.9.
As many as 214,000 jobs were created in October, and the unemployment rate touched its lowest level of 5.8% in six years, according to the Bureau of Labor Statistics. The strong jobs report confirms that the U.S. economy’s fundamentals are strong enough to sustain the momentum. And we expect this positive sentiment to encourage consumer spending, which accounts for over two-thirds of U.S. economic activity.
Shopping Spree
The Commerce Department revealed that consumer spending increased 2.2% in the third quarter from the initial estimate of 1.8%, given better job prospects, falling gasoline prices and the holiday season. Now, with Black Friday and Cyber Monday and of course Christmas lined up, retailers have every reason to be enthusiastic.
Data compiled by the nation's largest retail trade group, National Retail Federation (NRF), suggests a 4.1% jump in holiday sales (November and December) to $616.9 billion against 3.1% growth registered last year and better than the 10-year average sales increment of 2.9%. Online sales for this holiday season are also projected to increase 8–11% to approximately $105 billion, according to Shop.org.
Big Deals
Retailers must be on their toes to make the most of the holiday splurging. Be it with early-hour store openings, promotional events, free shipping on online purchases or heavy discounts, retailers will throw all possible baits to attract buyers in flocks.
Going by the saying, “the early bird catches the worm”, retailers such as Macy’s, Inc. (M), Wal-Mart Stores Inc. (WMT), Target Corporation (TGT), Sears Holdings Corporation (SHLD), J. C. Penney Company, Inc. (JCP), Kohl's Corp. (KSS) and Best Buy Co., Inc. (BBY) will open early on Thanksgiving evening.
Bottom Line
The holiday season accounts for a sizeable chunk of yearly revenues as well as profits. This is the reason why retailers grab every opportunity to drive footfall.
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