With the holiday shopping season underway, consumers are sending mixed indications about the strength of the economy and their intention to spend during the weeks leading up to Christmas this year.
The shopping season opened strongly Friday when consumers spent $8 billion — nearly 11 percent more than last year on that day, according to retail researcher ShopperTrak. But the next day, businesses witnessed sales that were 6.5 percent weaker than on the same day last year.
“For a number of years now, the signals and measures have always been mixed,” Business Prof. Claes Fornell said about economic indicators during the holiday season. “We’ve been seeing this since the middle of the Clinton administration.”
The United States’s gross domestic product — the amount of goods and services produced by the economy — grew by 3.9 percent during the third quarter of the fiscal year. This was faster than initially expected, but numbers released by the non-profit Conference Board painted a slightly different picture. The Board’s Consumer Confidence Index declined in November for the second straight month.
“With consumers’ assessment of current conditions holding steadfast and intentions to spend for the holiday season up from a year ago, the outlook for retailers is mildly encouraging,” Lynn Franco, director of The Conference Board’s Consumer Research Center, said in a news release. “But looking beyond the upcoming holidays, the continuing erosion in expectations suggests consumers do not feel the economy is likely to gain major momentum in early 2005.”
While Franco predicts that consumers intend to spend more this holiday season, they will probably be driven to do so because of lower prices rather than due to consumer satisfaction with goods and services offered by businesses.
“We look at the data we collect at the American Customer Satisfaction Index and we are seeing that the satisfaction of customers is not growing enough,” Fornell said. “Instead, companies have been training consumers to be price shoppers. Wal-Mart has been a leader in this, and it’s biting them back now.”
Fornell used the auto and retail industries as examples, saying consumers don’t spend unless prices are cut.
Over the weekend Wal-Mart, the world’s largest retailer, announced that its sales for November grew at a disappointing 0.7 percent from last year. This was significantly less than the 2 to 4 percent growth rate the company initially forecast.
In an attempt to bolster consumer spending in its stores, Wal-Mart announced yesterday that it will cut prices during the weeks leading up to Christmas due to weak sales, Reuters reported.
“Luxury and middle-income shoppers flooded stores en masse this Black Friday, some of them even showing up at 1 a.m. to be first in line for door-buster promotions and special sales. But Wal-Mart’s more value-oriented customers decided to sleep in,” the International Council of Shopping Centers said in a news release.
Following the presidential election last month, uncertainties about high oil prices and terrorism are also weighing on consumers’ minds as they head into the holiday season, Fornell said. While oil prices have fallen from record prices in early fall, they remain a concern as consumers head into the heavy travel season and cold winter months.
“Higher oil prices are seen as an additional tax. It takes a bite out of consumers’ discretionary spending,” Fornell said.
But determining the effects of November’s presidential election on the holiday economy is much more difficult than interpreting other signals, Fornell added.
“People are more concerned now than in spring about safety, terrorism and war,” he said. “Everybody is more concerned and that leads to some caution. But American consumers are not known to be very cautious. They tend to overspend and put themselves heavily into debt.”
Though Wal-Mart has declared it will further cut prices in the coming weeks, some local businesses have not found the need to do so.
“A lot of the products we have don’t need sales. We put items on sale only if they aren’t moving quickly,” said Ed Davidson, owner of Bivouac on State Street. “The things we sell are worth it and people realize that items we sell will last longer.
“We were pleased with the weekend. It was better than last year,” Davidson added.
This past weekend, the Ann Arbor Chamber of Commerce helped promote local businesses by having some of its members go on radio shows on local Clear Channel stations.
The chamber is also promoting the Ann Arbor Gold program, which encourages consumers to shop at local businesses. Started in 1994, the program allows people to purchase gift certificates that can be used at almost 150 local businesses currently participating.
“The goal is to help local businesses and keep money within the local Ann Arbor economy,” said Brandt Coultas, director of governmental affairs at the chamber. “There are a number of businesses in the area that do a significant amount of their business during the holiday season, and we will have to wait until the season is over to see how they have done.”
Since its inception, about $2 million worth of Ann Arbor Gold certificates have been sold, Coultas said. Currently, the certificates can be purchased at several local banks and at the chamber at 425 S. Main St.