Consumer confidence drops in December, but holiday retail has best increase in 5 years

posted at 12:00 pm on December 28, 2010 by Ed Morrissey

We’re still a week or more out from an assessment of the 2010 retail season, which has been reported thus far as a relative success.  If so, it will come despite a lack of consumer confidence, and not because of an increase in it.  Reuters reports an “unexpected” drop in December, fueled mainly by the continuing issues of joblessness:

Consumer confidence unexpectedly deteriorated in December, hurt by increasing worries about the jobs market, according to a private report released on Tuesday.

The Conference Board, an industry group, said its index of consumer attitudes slipped to 52.5 in December from an upwardly revised 54.3 in November.

The median of forecasts from analysts polled by Reuters was for a reading of 56.0.

Reuters never seems to remove its rose-colored glasses in its economic predictions.  In this case, though, the result may fairly be described as “unexpected.”  Retail sales in this holiday period jumped up 5%, according to SpendingPulse.  That’s the best year-on-year increase on a percentage basis since 2005:

U.S. retail sales, excluding autos, rose 5.5 percent to $584 billion from Nov. 5 through Dec. 24 for the biggest holiday-season increase since 2005, said MasterCard Advisors’ SpendingPulse, which measures retail sales by all payment forms. The Conference Board’s confidence index decreased to 52.5, lower than the most pessimistic forecast of economists surveyed by Bloomberg News and down from a revised 54.3 in November.

The SpendingPulse data seems to match the anecdotal observations so far in the holiday season.  Merchants seemed busier, and people began to spend not just on others but also themselves in this holiday season. An increase of 5% from 2009 doesn’t take us out of the doldrums, but it would put the consumer-driven portions of the economy on firmer footing going into 2011.  That assumes, however, that retailers didn’t buy that increase with heavy discounting that would erode the bottom line in order to clear heavy inventories.  We’ll know more about that in January.

The difference between confidence and sales could have been a result of the unemployment report in early December.  The lack of private-sector job creation took analysts by surprise, and the gloomy report may have  sapped the confidence of consumers after much of their holiday spending had already occurred. In that case, the bump from the retail season may be entirely transitory and already dissipated.

Confidence won’t be helped by the continued decline of property valuation.  At the Washington Post link above, the S&P/Case-Schiller report shows an overall decline of property values in October of 0.8% year-on-year.  The news was worse in single-family residential homes, which dropped a full percentage point:

U.S. single-family home prices fell for a fourth straight month in October pressured by a supply glut, home foreclosures and high unemployment, data from a closely watched survey showed on Tuesday.

The Standard & Poor’s/Case-Shiller composite index of 20 metropolitan areas declined 1 percent in October from September on a seasonally adjusted basis, a much steeper drop than the 0.6 percent fall expected by economists.

The decline built on a revised decrease of 1 percent in September and took prices down 0.8 percent from year-ago levels. It was the first year-on-year drop in the index since January.

The housing market has been struggling since home-buyer tax credits expired earlier this year. To take advantage of the tax credits, buyers had to sign purchase contracts by April 30.

S&P’s index committee chair David Blitzer says that the housing double-dip is “almost here,” but that is entirely a consequence of the gimmicky short-term interventions of Congress and the Obama administration.  The tax breaks did not create qualified buyers; it merely incentivized already-qualified buyers to move up purchases in order to get taxpayer subsidies through the credits.  That also extended the process of revaluation of bubble-inflated asset prices, which is inevitable.  Until real demand returns through an expanded group of qualified buyers, housing prices will continue to fall, eroding the primary asset of most consumers, and eroding their confidence in consumption ability as well.

The real solution for all of these ills is to stimulate private-sector job creation.  The only three ways for the government to do that successfully over the long term: looser monetary policies, tax cuts (especially targeted at investors), and regulatory relief.  We have as loose a monetary policy as possible, and tax cuts for investors appear politically impossible (and taxes are already relatively low, historically).  Since the Obama administration has embarked on massive regulatory expansion, don’t look for any significant improvements over the next two years.


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Pretty soon we will all be living in a van down by the river…

PatriotRider on December 28, 2010 at 12:05 PM

I have enough work to keep me buys without hiring anyone else. I bought a crap load of stuff. Pretty simple.

tomas on December 28, 2010 at 12:05 PM

housing prices will continue to fall, eroding the primary asset of most consumers, and eroding their confidence in consumption ability as well.

1) State and Muni goverments in BAD financial shape, which will result in…
2) Property taxes increasing, which will result in…
3) Decrease in home values, which will result in…
4) What Ed said above.

WashJeff on December 28, 2010 at 12:07 PM

Twas the season for store gift cards!

Fa-La-La-La-La!

La-La-Blah-Blah!

pilamaye on December 28, 2010 at 12:09 PM

3) Decrease in home values, which will result in…
4) What Ed said above.

WashJeff on December 28, 2010 at 12:07 PM

A closely watched index of home prices in 20 major metropolitan areas fell in October, underscoring a renewed decline for the U.S. housing market.

Ugh.

Knucklehead on December 28, 2010 at 12:14 PM

Pretty soon we will all be living in a van down by the river…
PatriotRider on December 28, 2010 at 12:05 PM

.
That’s my goal for 2010!

LincolntheHun on December 28, 2010 at 12:15 PM

Retail sales may have been up, but when economists drill down into the data they will note retailers had to offer huge discounts to get people to open their wallets. A number of high-end retailers had storewide thirty, forty, and even fifty percent discounts mere days before Christmas.

flyfisher on December 28, 2010 at 12:16 PM

My wife and I cut way back on our Christmas spending this year (for each other). It was very liberating. There was less running around, less wrapping to do, and best of all, we’re not dreading the arrival of the January bills.

We were both very happy with the gifts that we got for each other and the whole experience saved us a great deal of stress.

Sorry about that, retailers. But it sounds like you did quite well without us.

UltimateBob on December 28, 2010 at 12:19 PM

Next year we are celebrating Christmas after Christmas. That way I can still buy the latest most sought after gifts and get all of it at a 50-75% discount. The sales after Christmas are far better than any sale before Christmas.

milwife88 on December 28, 2010 at 12:20 PM

Guess I better learn to love PMI. A refinance is out of the question when home prices drop faster than you can pay down the principle.

fourdeucer on December 28, 2010 at 12:22 PM

Ugh.

Knucklehead on December 28, 2010 at 12:14 PM

Who would buy my home in IL?

My current thinking is that I am better off sticking it out in IL and wait for bankruptcy to be declared. While the red waved passed us by in 2010, I do not think that IL voters will sit idly by if taxes are raised. I base this on the rate of failure of tax increase initiatives for eduction. I think the voters will side with their own financial needs as opposed to the bond holders and retired public workers (who probably do not even live in IL anymore).

WashJeff on December 28, 2010 at 12:23 PM

Ugh.

Knucklehead on December 28, 2010 at 12:14 PM

They aren’t watching as closely as one may think.

upinak on December 28, 2010 at 12:26 PM

Did we expect this?

abobo on December 28, 2010 at 12:27 PM

Next year we are celebrating Christmas after Christmas.
milwife88 on December 28, 2010 at 12:20 PM

me too. I actually told hubby that we should do it on New Years Day.. due to the sales and such. He is okay with it.

upinak on December 28, 2010 at 12:27 PM

Next year we are celebrating Christmas after Christmas. That way I can still buy the latest most sought after gifts and get all of it at a 50-75% discount. The sales after Christmas are far better than any sale before Christmas.

milwife88 on December 28, 2010 at 12:20 PM

My wife and I did that this year, the savings were fantastic!

bluemarlin on December 28, 2010 at 12:29 PM

If the trends were going down until Christmas, then spiked up specifically for Christmas, then that would imply that people were hoarding their money just for Christmas and that spending will go back down immediately after Christmas.

Which would completely explain why retail had the best increase in 5 years. It was an increase over a deliberately suppressed economy in November.

On a more optimistic note, it could indicate that the midterm elections gave people hope that the worst of the recession is over.

Two possible explanations, one predicting better times ahead, the other predicting the same or even worse than the past. That argues strongly that we can’t really come to a conclusion based on the available evidence yet.

There Goes The Neighborhood on December 28, 2010 at 12:35 PM

I think people know inflation is just around the corner, and they’re buying while they can.

disa on December 28, 2010 at 12:36 PM

Next year we are celebrating Christmas after Christmas.

milwife88 on December 28, 2010 at 12:20 PM

You’ll be able to celebrate next year? Whoa . . . must be nice!
/s

MassVictim on December 28, 2010 at 12:37 PM

WashJeff on December 28, 2010 at 12:23 PM

I’m staying put in the shabby chic projects I live in and will continue to watch the idiots who run this village buy up all the foreclosures, rehab them and bankrupt themselves.

And how I love that fancy, million dollar sign they put up on Lincoln highway touting all the great shopping here that doesn’t exist.

Knucklehead on December 28, 2010 at 12:38 PM

Hubby and I gave no gifts to each other, but we went to Arizona for the first time ever and spent our money on hotels, restaurants and National Parks. Arizona is really beautiful and the weather beat Illinois’ hands down.

Fallon on December 28, 2010 at 12:39 PM

Next year we are celebrating Christmas after Christmas.

milwife88 on December 28, 2010 at 12:20 PM
You’ll be able to celebrate next year? Whoa . . . must be nice!
/s

MassVictim on December 28, 2010 at 12:37 PM

Next year most people will be happy putting food under the tree, and won’t be worrying about buying Chinese plastic crap.

PatriotRider on December 28, 2010 at 12:41 PM

It all comes back to jobs….and Dumbo is still doing nothing about it, per the plan.

search4truth on December 28, 2010 at 12:43 PM

will continue to watch the idiots who run this village buy up all the foreclosures, rehab them and bankrupt themselves.
Knucklehead on December 28, 2010 at 12:38 PM

gotta love community property.////

upinak on December 28, 2010 at 12:43 PM

Credit cards issuers have been lowering standards lately. We’re back to the days of “have pulse, here’s some credit”. So it makes sense that retail spending went up a little. When those visa and mc bills are defaulted on in a couple of months, I wonder what adjective Reuters will use?

angryed on December 28, 2010 at 12:44 PM

The problem with stat-compilers like SpendingPulse is that it’s not very granular. Okay, “retail sales” are up. But that covers a lot of ground. To use an extreme example, what if that were because half the country was buying freezedried MREs and modular fallout shelters? It doesn’t necessarily mean that “the nation” has merely decided “times are better, let’s buy more stuff.”

Also, anecdotal evidence of mall traffic and the like is useless. More than one study has shown that during the holidays, people go out and shop because they like it. And they’ll do it no matter what. What matters is how much they spend. And during lean years, they’ll go out and do a lot of looking but only a little bit of buying. And that plays into the hands of brainless CNBC producers who send reporters out to cover the Huge Crowds at New Jersey malls on the day after Thanksgiving, and then have to run stories two months later asking “Why were sales so weak?”

My local mall was just as crowded last year as this year.

The Lone Platypus on December 28, 2010 at 12:45 PM

I bought stuff like a madman; might as well spend it before Uncle Sugar gets his grubby paws on it.

Bishop on December 28, 2010 at 12:48 PM

We’re just spending our money before it’s worthless paper.
Turn it into tangible goods rather than wipe our backsides with it in six months.

Tony Soprano on December 28, 2010 at 12:49 PM

The Lone Platypus on December 28, 2010 at 12:45 PM

I’ve used this example before…

One year you have 100 people in a store at any given time each spending $100. Next year you have 95 people in the same store each spending $95.

To the CNBC producer he sees a busy store. But in reality that store’s sales went from $10,000 to $9025. That’s a 10% drop in sales but to the naked eye it seems like the store is just as busy so all must be well.

angryed on December 28, 2010 at 12:50 PM

One other thing….when you hear “retail” sales just remember retail includes gas stations and grocery stores. So if the price of gas is up 10% from last year, that counts as an increase in “retail sales”. Same with the cost of food which is up quite a lot over the past year.

angryed on December 28, 2010 at 12:52 PM

I’m staying put in the shabby chic projects I live in and will continue to watch the idiots who run this village buy up all the foreclosures, rehab them and bankrupt themselves.

Knucklehead on December 28, 2010 at 12:38 PM

If they are going to spend the money, they would be better off turning the homes into green space (i.e., tear them down). South Chicagoland has to compete with IN. If you currently do not own a home, and want to live in the area, IN is the smart financial choice.

Last time I shopped there, Marshall Fields existed and I enjoyed running up and down the mounds in the center of the outdoor mall.

WashJeff on December 28, 2010 at 12:54 PM

Next year we are celebrating Christmas after Christmas.

milwife88 on December 28, 2010 at 12:20 PM

You can always become an Orthodox Christian. For them Christmas Day is celebrated on January 7th.

Tommy_G on December 28, 2010 at 12:54 PM

I saw that CNN was really excited about those holiday sales figures! Yeah! Everything is good now!

yubley on December 28, 2010 at 12:56 PM

WashJeff on December 28, 2010 at 12:54 PM

Have you seen Hammond or Whiting lately? They’re starting to look a lot like Gary. There’s always Munster but it’s expensive and has flooding problems. Almost have to hit Porter County, but then again that is getting pretty expensive now too,

Tommy_G on December 28, 2010 at 12:58 PM

I think many people were hoarding their cash/holding their breath until the tax rate extensions were signed into law, then once that took place they could go out and purchase more freely. A corollary to that would be now that the cavalry, aka the Republican House, is at the top of the hill they feel like they can spend a little more freely.

txmomof6 on December 28, 2010 at 12:59 PM

I won’t know until next month for sure…but it sure felt like a hard candy Christmas at my place. :-(

DanaSmiles on December 28, 2010 at 1:01 PM

I think people know inflation is just around the corner, and they’re buying while they can.

disa on December 28, 2010 at 12:36 PM

Yep. You can’t beat the market. You can’t beat the collective intuition and inclination of the People. People are buying things they can use because they know the dollar is going down. I’m one of them.

j_galt on December 28, 2010 at 1:02 PM

Have you seen Hammond or Whiting lately? They’re starting to look a lot like Gary. There’s always Munster but it’s expensive and has flooding problems. Almost have to hit Porter County, but then again that is getting pretty expensive now too,

Tommy_G on December 28, 2010 at 12:58 PM

HIghland and south are just fine. One of my co-workers lives in Hammond and has been hit by the flooding problems. Problems started when the government “fixed” the storm drain problems.

IN real estate prices will be rising and more people from IL flee to IN. IN’s constitutionally enshrined low property taxes will ensure that demand is more robust relative to IL.

WashJeff on December 28, 2010 at 1:03 PM

The difference between confidence and sales could have been a result of …

I spent more on myself this season because I expect serious inflation next year. If I anticipate needing it in the foreseeable future, I’m buying it now. Probably some others in the same boat.

petefrt on December 28, 2010 at 1:04 PM

Last time I shopped there, Marshall Fields existed and I enjoyed running up and down the mounds in the center of the outdoor mall.

WashJeff on December 28, 2010 at 12:54 PM

The Marshall Fields building is being torn down as I type. The property is being given to a developer who built $200,000 crap homes right across the street (the mall no longer exists)half of which are in foreclosure now, the other half will not withstand 50 mph wind gusts.

Green space makes too much sense to the idiots running this place.

Knucklehead on December 28, 2010 at 1:04 PM

Knucklehead on December 28, 2010 at 1:04 PM

And the developer is probably getting a property tax break, not that I am opposed to that, but it reveals the the politcians realize that there is an incentive in lower taxes. They will not work towards providing a low tax burden to all citizens to make the area attractive to economic activity.

WashJeff on December 28, 2010 at 1:16 PM

Why does Hot Air consistently ignore The Fed’s distribution of our wealth to their central banker homies?

http://www.ft.com/cms/s/0/a85c86e0-11eb-11e0-92d0-00144feabdc0.html#axzz19QnKGDAb

True_King on December 28, 2010 at 1:18 PM

Sold our home last July with just a smidgen of pocket change left over. It is on the market by the new owners, at 10k less then we sold it for.

Limerick on December 28, 2010 at 1:40 PM

txmomof6 on December 28, 2010 at 12:59 PM

Do you really think people sit around and decide to buy a new TV because a senate bill got passed or because of an election result? I really doubt that. If that were the case then Texas would have seen a 90% drop in spending during November 2008.

angryed on December 28, 2010 at 1:44 PM

Misreading data: This was the largest sales in history where the consumers paid with cash. Credit card sales are down. That is the significant point to understand. People saved for 2 years and then purchased. Without the drastic sales cuts this would never have happened. Cash sales are indicative that the buying public is growing a brain and they are leery of the future.

Jdripper on December 28, 2010 at 1:52 PM

I was at Best Buy this morning. Unsold goods like HDTVs and Blu-Ray players were stacked to the ceiling.

Either they’re not counting retail sales and just extrapolating from last month’s inventory, or Target and Wal-Mart shelves must be bare.

DarthBrooks on December 28, 2010 at 1:57 PM

Always with the measurement of retail by percentages? Oy.

Maybe this is nitpicky, but consider: If 2007 sales are $100, and 2008 sales are $80, then sales are down 20%. And if 2009 sales are $90, sales are then up by 12.5% over 2008.

But that number, even without factoring in inflation (which does exist), is still 10% below 2007. And it might be the “best percentage increase” in 100 years, but it still sucks compared to just two years ago.

A little context would be helpful.

Jaibones on December 28, 2010 at 2:03 PM

inflation does not exist. If it does the Fed interest rate would not be zero in the last three years.

I expect the numbers to be revise downward.

jdun on December 28, 2010 at 2:12 PM

That’s the best year-on-year increase on a percentage basis

Newsflash: Christmas spending was down TWENTY percent last year. So now, this year, it’s “up” FIVE percent from that. And some idiots are trying to spin this as a good thing?

Of course there were plenty of relative peaks and valleys during the First Great Depression, too. In neither case was anyone worried that the rapid downward spiral was too gosh-darned steady. That has never been the problem.

logis on December 28, 2010 at 2:13 PM

I think people are just getting used to the Euro-flavored “new normal.” 10% unemployment rates and the prospect of an almost assuredly worse future than the present is no longer cause for panic, but something that’s fatalistically accepted. The loss of the panic sense loosens purse-strings a bit during the holidays, but it doesn’t reflect on overall confidence, which is rightfully abysmal.

Blacklake on December 28, 2010 at 2:39 PM

holiday retail has best increase in 5 years

Only because it was so bad last year.

roux on December 28, 2010 at 3:00 PM

People spent in order forget the tyranny they are living under and to buy things now before the inflation starts kicking in.

Dhuka on December 28, 2010 at 3:13 PM

Gas use was up, though it’s also down year to year (for the 14th week in a row).

It’s almost like the complete absence of drilling in the Gulf of Mexico is starting to have a cumulative effect on fuel supplies. This should be a central campaign issue in 2012. Obama deliberatly took action to increase gas prices, hoping to reduce U.S. greenhouse emissions. So what if poor Americans suffered as a result?

hawksruleva on December 28, 2010 at 3:15 PM

Here’s a graph that says it all.

In 2007, we spent over $750 billion during the holidays. Now we’re “up” to $688 billion.

hawksruleva on December 28, 2010 at 3:24 PM

The rise was seen in just about every retail category. Apparel led the way, with an increase of 11.2 percent. Jewelry was up 8.4 percent, and luxury goods like handbags and expensive department-store clothes increased 6.7 percent. There was even a slight increase in purchases of home furniture, which had four consecutive years of declining sales. The figures include in-store and online sales, and exclude autos.

Of course, the broad increase was driven in part by higher spending on necessities like gas and food. And even with the across-the-board gains, some categories, like furniture and electronics, have still not climbed back to their prerecession levels.

I also read that one of the things driving the increase was spending on luxury items. Higher end store have shown a larger increase than discounters.

Deanna on December 28, 2010 at 3:32 PM

Who would buy my home in IL?

My current thinking is that I am better off sticking it out in IL and wait for bankruptcy to be declared. While the red waved passed us by in 2010, I do not think that IL voters will sit idly by if taxes are raised. I base this on the rate of failure of tax increase initiatives for eduction. I think the voters will side with their own financial needs as opposed to the bond holders and retired public workers (who probably do not even live in IL anymore).

WashJeff on December 28, 2010 at 12:23 PM

Come on north of the toll booths. Wisconsin is about to be under new management. (I can’t believe I’m actually encouraging someone on the wrong side of the toll booths to head north)

steveegg on December 28, 2010 at 3:45 PM

Here’s a graph that says it all.

In 2007, we spent over $750 billion during the holidays. Now we’re “up” to $688 billion.

hawksruleva on December 28, 2010 at 3:24 PM

When you say POR Economy, you said it all.

steveegg on December 28, 2010 at 3:47 PM

`I “don’t look for any significant improvements over the next two years” until at least two years after Obama leaves office independent of whether that is in 2013 or 2014.

burt on December 28, 2010 at 6:37 PM