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BankRI, Lardaro on the Economy Series
December 2004


The official start of the holiday shopping season occurred on November 26. By many accounts “Black Friday,” as this day has come to be known, was highly successful. Nationally, improving economic activity has led forecasters to predict retail sales growth in the range of 5 to 6 percent above levels last year. And, based on this assessment, many retailers have decided to manage inventory and to discount less this year than they have over the past few years.
Unfortunately, the analysis of holiday spending is more complicated and less predictable than the experts seem to believe at present. First, for Rhode Island and New England, the economic picture is a bit less optimistic than it is nationally. Job growth here is slower than it is nationally. Second, the combination of high gasoline and heating costs will diminish holiday spending here somewhat. I expect holiday spending in Rhode Island, as officially tabulated, to be about 3.5 higher than it was last year. While this is slower than national growth, it isn’t all that bad. And, actual holiday spending, which is different than the official tabulations, is likely to be even better.

What is the difference between official and actual growth? While the “experts” who follow retailing consider the official start of holiday shopping to be Black Friday, the actual start for many persons occurs far sooner. In my family, July is often the month when shopping begins. I’m sure we’re not alone in this. And, while so much of the official tracking pertains to the “brick and mortar” establishments, the growth of shopping on the Internet continues to grow at higher rates each year. This is an important consideration since many online retailers offer free shipping and do not collect sales taxes. For Rhode Islanders, given our hefty 7 percent sales tax rate, the absence of shipping and sales taxes can translate into substantial savings on purchases of several hundred dollars or more, which includes many of the “hot” technology items. Currently, we are not able to track online sales for Rhode Island, which results in some understating of actual holiday sales here.

Another important consideration is that while retailers would like to avoid discounting much this season, shoppers have become far too accustomed to discounts. On Black Friday, stores offering discounts and promotions fared well, while those who skipped such inducements, most notably WalMart, posted disappointing results. The existence of discounting has an important effect on the “official” holiday numbers. When stores discount, it takes a greater number of goods sold to generate the same revenue as last year. If, for example, 5 percent more items are sold, but the average discount is 10 percent, revenue this year will be less than it was last year, leading analysts to label this a disappointing season. So, the yardstick used by the experts to define success implies a fairly high standard for success.

So, while official holiday spending in Rhode Island may turn out to be disappointing, based on the “official” standards, expect actual spending to be quite strong, and nothing to really complain about.


by Leonard Lardaro

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