Temperatures will continue to fall over the next few days

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On the eve of Thanksgiving, retailers are doing their best to convince tight-fisted consumers to loosen their grip on their wallets this holiday season.


Many big merchants, though, expect so-so sales. Best Buy, Target and other major chains have lowered their profit outlooks.


The economy has been improving. But the Great Recession has taught a lot of consumers to be more careful with their spending when they venture into the stores.


"We are definitely going to be more frugal this year, absolutely," said Terri Nowicki Smith, as she shopped recently at the Mall of America. She and her husband, Joe, both have jobs. But like many folks, they're still worried about the economy.

 
"People just aren't sure what's going to happen," the St. Paul woman said. "So, why spend all your money? We'll focus on our holiday get-together and the meals and just being together, rather than buying expensive gifts for each other."


That sentiment is not good news for Minnesota's important retail sector. Frugality continues despite the slow but unmistakable economic recovery.


The job market is improving. The housing market is coming back. And the stock market keeps hitting new highs, though that mostly benefits the wealthiest of Americans who own the vast majority of stock. Only about half of Americans own stock and less than a third of families have shares worth at least $10,000, according to New York University economics professor Edward Nathan Wolff.


So far, the economy's gains haven't been enough to shore up consumer confidence.


In fact, Americans' confidence in the economy has been falling. Many people are still struggling with the two percentage point increase in the Social Security payroll tax this year. That's cut annual take-home pay by roughly $1,000 for people at the median U.S. household income of about $51,000.


Still, U.S. retail sales were up slightly in October, after being flat the previous month, according to the U.S. Commerce Department. Americans spent on big ticket items such as cars and furniture. But that may have left them with less room for more discretionary items like clothing this holiday season.


Everything points to just a small rise in holiday retail sales, said R.J. Hottovy, retail analyst with the investment research firm Morningstar.


"The average consumer in the U.S. is still under pressure from a number of sources," he said. "So, I think they'll be a little bit more restrained at the end of the day when making purchases this year."


Annual forecasts based on consumer surveys have predicted increases and decreases in holiday spending.  


The Gallup Poll forecasts a nearly 4 percent increase in holiday retails sales over last year. That's short of the 6 to 8 percent increases common in better times but it's better than the 2008 and 2009 holiday seasons, when spending hardly rose or even shrank.


The National Retail Federation expects retail sales to be up 3.9 percent to $602.1 billion during the last two months of the year. That's higher than last year's 3.5 percent growth. Meanwhile, a Reuters-Ipsos poll found most Americans plan to spend less this holiday season than they did last year.


More tellingly, neither Target nor Best Buy anticipates particularly joyous sales or profits.


Target earlier this month warned that customer surveys reveal continued anxiety about the economy and the ability to stay within household budgets. And Best Buy's stock price tumbled after the retailer vowed that it'll meet rivals' price cuts even though that will eat into profits.


Retailers have to offer bigger discounts than they used to if they want to pry open wallets, said Brian Yarbrough, a retail analyst with the investment firm Edward Jones.

 
"The consumer is really looking for value," he said. "So retailers are going to have to discount and show people they're willing to give them a good value to drive people in the doors. I've been hearing a lot of retailers say that in the old days it was 20 percent off. Today, it's like you've got to offer 40 percent off to really drive interest."


As retailers and analysts rub their worry stones over holiday sales, at least one economist argues much holiday spending is a great waste.


That's the view of Joel Waldfogel, a University of Minnesota economics professor and 

author of "Scroogenomics: Why You Shouldn't Buy Presents for the Holidays


Gift-giving is a wonderful way to express one's feelings but is often an inefficient way of providing real value to the recipient, Waldfogel says.


"I don't have a view about how much people should spend," he said. "But as a microeconomist, I find it distressing if people spend a lot of money on things recipients don't want."


Waldfogel says gift cards at least allow recipients to choose something they value. And he says gifts of money to the truly needy are a good use for holiday cash, leaving both the gift giver and recipient with a sense of satisfaction.


Maybe so. But it may not do much for the people who count on keeping their jobs at Target and Best Buy.

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Business and Economic News

Martin Moylan

Author

On the eve of Thanksgiving, retailers are doing their best to convince tight-fisted consumers to loosen their grip on their wallets. Many big merchants expect lukewarm sales. The Great Recession has taught consumers to be more careful with their spending.

Retailers, analysts expecting lukewarm holiday sales

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