Holiday Spending Expected to be Low in 2009

11/28/2009, by Proloy Bhatta

HIGHLIGHTS

• Those with children are expected to spend 12% less on gifts this year.
• Residents from the West are expected to spend an average of $538 on gifts this year -- down from $664.
• If you are aged between 35 to 54 years old, you are likely to spend less money on gifts. The average has dropped from $744 to $619 in a year. A drop of 17%.

Consumer Spending Down

Consumer spending is down 23% from the same week a year ago.

This highlights the divide between Wall Street and Main Street -- between rich and poor.

Economic confidence on Main Street continues to languish even as the stock market continues to soar. Although the dollar's plunging value seems to be a strong positive for Wall Street, it exhibits no such benefits in the average consumer's perceptions. - Gallup

Holiday Spending

According to a recent poll by Gallup from Nov 5-8, Americans expect to spend an average of $638 this year on Christmas gifts -- up from $616 last November. 34% say they will spend less on gifts this year than last. 46% of Americans said they would spend less in 2008 than in 2007.

So let's break down the numbers and see who will spend less:

AGE

If you are aged between 35 to 54 years old, you are likely to spend less money on gifts. The average has dropped from $744 to $619 in a year. A drop of 17%.

The other age demographics; (18 to 34) and 55+ have indicated that they intend to spend more on Christmas gifts this year than last year.

55+ are expected to spend $100 more this year than last.

For those aged 18 to 34 year olds - they are expected to spend $657 this year on gifts up from $552 last year.

I personally see some potential problems here. In Nov 2008, the youngest age demographic was expected to spend significantly less than those aged between 35-54. But the current survey suggests that they may spend more.

So what is the problem? The youngest age group may be overstating reality.

In December 2008, they stated that they would spend an average of $499 -- down about 10% from their intentions just a month prior. So could they be overstating their intentions this year as well but by an even more extreme number?

Children in this age group are no better off in 2009 than they were in 2008.

Geographic Locations

Of all the regions in the United States, the West has been the hardest hit by the weak real estate market and this is affecting how much they are expected to spend this year.

They are expected to spend an average of $538 on gifts this year -- down from $664.

Children Under 18

Children demand gifts so those without small children spend less money on gifts. But those with children are expected to spend far less this year than last.

• Those with children are expected to spend 12% less on gifts this year.
• Those without children are expected to spend 15% more on gifts this year.

Interpretations

Gallup indicates that it is difficult to interpret these results when there are minor changes from year to year.

Last year's dip into the low $600 range, after spending predictions registered $866 in November 2007, offered a clear signal that Americans were reining in their spending to a perhaps unprecedented degree. That was borne out in actual retail sales data. According to historical patterns, the fact that Gallup's November 2009 spending projection is very similar to (and not lower than) those recorded in November and December 2008 should mean spending this year will not be as deflated as last year. Whether that means holiday spending will be flat or actually improve compared with 2008, or only decline by a smaller percentage, is unclear. However, it is unlikely to decline by as much as occurred in 2008.

Personally, I see trouble this year. Just look at each of the three tables shown above. The demographics that indicated they would spend the most in November 2008 have each had large drops in their expected spending this year -- despite the fact that the average has gone up. So if those that spend the most are already anticipating that they will rein in spending, it could permeate through the rest of the demographics.

Just remember the following issues working against the consumer:

• consumer spending is down in 2009 from the same point in 2008
• credit card companies have bumped up APRs
• credit cards have tightened credit limits
• unemployment rate is higher and not expected to improve soon
• inflation is starting to kick in
• Americans were hopeful in 2008 with the election of Barack Obama but pessimism has kicked in

However, one issue that may have helped the average consumer in 2009 is the large numbers of people who have decided to go into foreclosure. By eliminating the need to make a mortgage payment, this may have freed up some discretionary spending.

It would have been good to see the crosstabs of those who owned a house in 2008 but have chosen to go into foreclosure in 2009. Spending of those individuals may creep up.

Gallup also did not mention anything about how an election year has an impact on consumer spending. Does my contention that without the hopeful attitude in 2009 that Americans had in 2008, spending would go down? I guess we will just have to wait and see on that.