Charles Hugh Smith
November 23, 2010
Of Two Minds

~~~

Santa, please, please, please strangle the idiotic fantasy that Americans buying a bunch of junk (or gift cards for after-Christmas purchases of junk) will “save” the imploding U.S. economy. My Christmas wish to Santa: please let this be the last Christmas in America that is dominated by the propaganda that holiday retail sales have any more impact on the $14.7 trillion U.S. economy than a moldy, half-eaten fruitcake left over from 2007.

Fact: the 2010 GDP of the U.S. is projected to be about $14.7 trillion. (CBO estimate) The Federal Budget Primer.

Components of Government spending within U.S. GDP.

Fact: total holiday retail sales were $504 billion in 2009. Holiday sales–National Retail Federation.

That means holiday retail sales are a mere 3.4% of the U.S. GDP.

Despite the Financial and Mainstream Media’s pathological obsession with holiday retail sales numbers as proxies for the “health” of the entire U.S. economy, holiday sales don’t really change much:

2007: (pre-recession) Holiday sales: $516 billion
Holiday sales as percentage of annual retail sales: 19.5%

2008: Holiday sales: $495.5 billion
Holiday sales as percentage of annual retail sales: 18.6%

2009: Holiday sales: $504.8 billion
Holiday sales as percentage of annual retail sales: 19.4%

So the start of the 2008-09 recession saw a drop of $21 billion in holiday sales: statistical noise in a $14.7 trillion economy and a modest 4% decline from pre-recession levels. 2009 saw sales rise by about $10 billon (about 2%), so a rise of 2% from 2009 would return holiday sales to pre-recession levels.

Now the propaganda machine is cranking up to announce that a 2% increase in holiday retail sales means the U.S. economy is off and running. Santa, please, please, please order your reindeer to stomp the life out of the idiotic fantasy that Americans buying a few billion dollars more needless junk from China is any sort of evidence that the U.S. economy is “growing at a healthy clip.”

The entire retail sector is 7.9% of the GDP compared to a 21.4% share for the FIRE tranch (finance, insurance and real estate) of the economy.

Does anyone seriously believe that 3.4% of the economy can possibly leverage up the entire GDP with a razor-thin increase of $10 billion in holiday sales?

Santa, you have my deep gratitude if you could jam the propaganda machine so that this is the last Christmas in America where trivial retail sales are hyped as the bellwether for the $14.7 trillion U.S. economy.

~~~

Originally published at Of Two Minds

Category: Consumer Spending

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

23 Responses to “Please, Santa, Let This Be the Last Christmas in America (that’s supposed to “save” the U.S. economy)”

  1. machinehead says:

    Nice, simple, illuminating use of ‘back of the envelope’ math.

    Who would’ve thought it? Well, the breathless ‘Americans camping out for Black Friday sales’ should give us a clue. Only morons would fall for such self-serving propaganda.

    Thanks for the insights.

  2. b_thunder says:

    Come on, Ritholtz, what’s you opinion on this provocative topic? Will add’l $20B (or 4%) holiday sales growth y/y be enough to propel AMZN to… $300?? ( this is my best Henry Blodget impersonation, I can’t bring myself to print “$400″ like he once famously did.)

    … and I hope Barry won’t charge $$ for his version of “channel checking”

  3. constantnormal says:

    I’m sorry to be the bearer of bad news, but there is no Santa Claus. Except on Wall Street.

  4. Liminal Hack says:

    Well, santa has only ever delivered to the rich kids hasn’t he?

    When was the last time santa was seen in the Congo?

  5. bonerici says:

    Charles don’t you think that the retail business is different from the rest of the economy, for them, most of the year they barely scrape by selling products nearly at cost, and only during christmas are they are able to bank enough profits to last them through the rest of the year. For retailers one more bad holiday season means firing all the employees and going out of business.

    We probably have about twice as much retail as we need in the USA, but that doesn’t change the fact that even a small downturn can cause a lot of misery for retailers. Retail is such a do or die small profit business, that I’m amazed so many people seem to want to go into it.

  6. NoKidding says:

    Well if the PE ratio is around 25 and holiday sales are 500B, then don’t holiday sales drive about 1.25 trillion of valuation?

    OK not really, but it would be foolish not to consider leverage.

  7. The world should take a break from charging anybody interest on anything until everybody’s debt is paid off, that’s what really matters now.

    Or as a compromise, until the overall world debt is cut in half.

    In the meantime, our billionaires and trillionaires are getting the best interest rates that motivate the bankers to screw over main street. Want proof? Bank of America charged as much in penalties and fees as they paid out in interest rate dividends.

    I am pretty sure those fees and penalties were not assessed to the millionaires and billionaires, and even if some were, the percentage would not raise a speck a dust.

  8. Petey Wheatstraw says:

    Santa is a Chinese exporter and the toys ain’t free.

    As for the holiday itself, I’m sick of it. The social ritual. The pressure to conform. The hypocrisy. The ubiquitous marketing ideal. The. Mass. Fucking. Hysteria. Y’know that song ‘Rockin’ Around the Christmas Tree’? Well, I’ve probably heard that twangy piece of shit a hundred thousand times, and every goddamned time, it’s gotten stuck in my head. If I could, I’d ban it outright, or at least in public places. Play that shit around me, and I’ll kick your fucking speakers in and break your fingers. Same goes for all of the other Christmas music. Especially the little drummer boy. Never give a kid a goddamned drum. Maybe a good depression — like when this one gets into full swing next year — will be just the thing to end this insanity. Get back to the real meaning of Christmas: A can of beans shared around an outdoor Christmas tree fire, as you huddle with family members in an effort to keep warm. Try rockin’ around that shit.

    BTW: Happy Thanksgiving. BR’s site and those commenting here are something to be thankful for.

  9. When was the last time santa was seen in the Congo?

    ======================================

    I hear he’s thinking about opening a few factories down there. They are cheaper than elves to employ

  10. Adyt says:

    If we compute yoy % changes we get:

    2008/2007: – 4%

    2009/2008: + 2%

    This way the data shows weakness in 2008 and strength in 2009.

  11. Joseph Martinez says:

    Psychology, psychology, psychology it is all about psychology. If you think it can happen then it can happen. It’s all about getting money flowing through the system. Ads for the media, if fact ads are everywhere, movies, DVDs, telephone recordings, bathroom walls, airports, google, networks, T-Shirts, cars, buses, if it moves it can advertise. If retail can have better then excepted holiday sales then the momentum might keep going.
    Follow the momentum. Be nimble. Get in and get out. Take your profits and minimize your losses. Any lets all get together and sue the government when they raise the capitol gains tax for penalizing us because we are able to protect our money in this unfair corrupt economic system. And when we banned together to sue the government then and only then will we be able to demand an audit the Feds.

  12. Mike in Nola says:

    For those who want to do their part in making Jedi Old Ben Bernanke happy, check here:
    http://bfads.net/

    Some started at 12:01 am, though as I previously mentioned, several of the big retailers have had very good sales running since October.

    The number of places with online sales shows where retail is headed. Not good news for the malls.

  13. gd says:

    Past and future progression of gift-giving in America:
    Step 1: give small, meaningful and useful gifts to immediate family members.
    Step 2: give lots of junky dumb gifts to everyone you can think of.
    Step 3: give gift cards and cash because its easier and more useful.
    Step 4: use web site to pass credit instead of physical gift cards and cash.
    Step 5: web site balances out credit between everyone to zero, inventor makes billions on transaction costs.
    Step 6: give small, meaningful and useful gifts to immediate family members.

    I think we’re at step 3, but I don’t get out much.

  14. Julia Chestnut says:

    I didn’t do black Friday at all last year; this year, I can report that I am back from spending a total of $100. There were a couple of things that I wanted to get for super cheap that I needed for the teenage girls at a home for girls the church runs; I’ve already shopped for the younger orphans (they are SOOOO much easier than teens!). I got a couple of teacher gifts. It’s 8:00 am, and I’m already done and dressed for work.

    The whole thing is a little bizarre. We went through a rough patch and only had about 12 presents under the tree (total for a family of 5 – not each) last year. You know what? It was the best Christmas ever. I’m sticking to that model, and anything I have extra is going to those who have less.

    I can hardly be the only one in the country doing this.

  15. Greg0658 says:

    NoKidding @7:30 last night – hit on this concept a bit .. the stuff sales are 1 part of the cycle process … where would the economy be without the newspaper inserts that are thicker than the paper of real meat (if anything is blahblahblah) then add the tv & radio commercials .. now thats the pushing part … lets jump to the creation process .. then the design process ….. get the point .. money goes round’n’round and everyone gets to use the manna – to a point* … that point* is all the Parker Brother Monopoly money is in 1 pile .. game over … you win .. redivy .. start again

    *coda – exported from local economy

    ps – I missed the satelite business shooting parking lots so you all have the scoop on who to short & put chips on

  16. Greg0658 says:

    pss – what bugs me MOST of all – the waste … if any part of the process ends in the garbage dump soon .. BUGS ME BIG TIME .. like the radiation of electrical energy to promote buying stuff wrapped in pretty paper (well .. I like the pretty paper part)

  17. toolman335 says:

    Barry, this is one of your best yet!

    Bonerici, one bad holiday season can destroy a retail company? One bad season anywhere, anytime can destroy any company.

    Look at Barry’s retail numbers from the last three years. They’re barely moving. Barry did a great job exposing a huge myth.

  18. louiswi says:

    Here’s the quick summary of Christmas:

    Christmas is a time when all the Jewish merchants gather ’round and sing ” We have a friend in Jesus”.

    Contemporary Christmas causes you to play someone else’s game which in itself is never a good idea. If you really want to have a memorable Christmas, get or give a BJ from/to your favorite loved one and then continue to enjoy the rest of the day with same.

  19. Long term says:

    @gd

    pretty gd entertaining post. thanks.

  20. bergsten says:

    Our local Knight Ridder paper (slogan: “we are so bad, we get yesterday’s weather wrong”) had a lead article in the business section saying that people were “flocking to shop on Black Friday.”

    Pretty good reporting, considering the paper is delivered at 5:30 am Friday, is printed the evening before, and said section is where the stale news goes, so the story (and I do mean “story”) was probably written a week before.

  21. bergsten says:

    Somebody further up the comments gave me an idea. It will never happen, so I might as well tell you here where nobody will even read it:

    For a few years, offer a tax deduction (or better tax credit) for payment of principal on all personal (as opposed to corporate) loans. Maybe some percentage of the interest too.

    This might induce people to pay down debt.

  22. Estragon says:

    Just to pick a nit, it’s a little misleading to use the retail contribution to GDP number in the context of the importance of retail sales to the economy.

    The retail contribution to GDP is the net value added (salespeople, etc.).
    Retail sales is a gross number, which includes other value added imputs (manufacturers, distribution, advertising, etc.). Retail sales are ~25% of GDP.

  23. oldtimer says:

    A Christmas Message

    Do you remember the song “all I want for Christmas is my two front teeth” I think the song is particularly poignant because the little girl has got her priorities right. She recognises the significance of something she has physically lost, which is more important to her than any material gifts. In our consumerist society it is easy to forget what matters most. The point has been brought home to me as I have recently returned home from hospital after an operation. For a short time I had to manage without the use of my car, and cope as best I could. I found that it was not dire hardship, just new challenges to set my mind to.
    My first test was to get to hospital by bus, which involved four changes. Local bus to town; town bus to city centre number one; trunk route bus to city centre number two; local bus to hospital. During the intermittent journey I took note of the variety of characters that were collected as we weaved our way through the streets and housing estates and then sweeping through the countryside, to enter the bustling metropolis of the city centres. Young mothers, juggling children, babies, and push chairs, looked confident, with carefree smiles. Young lads and old chaps, wearing baseball caps and trainers, sported tattoos of love and hate. The burden of life for old ladies was evident in their slow determined steps, and then there were the protestors who had to engage in a protracted argument with the driver
    My first impression of hospital life was not good. I had arrived in good time and reported to the ward nurse. “Can I have your papers young man”, “come this way young man” “This is your bed young man” I thought if she calls me “YOUNG MAN” one more time I shall start giving her verbal, and I shall probably use a few expletive adjectives and nouns as well. And then I thought keep your cool, don’t bite back. Another nurse came and asked me a routine set of questions, and filled in numerous forms, which was followed by a lady doctor who made an examination and asked me the same questions again. Little did I know that these questions would be repeated again, and again, and again, until I was wheeled into the operating theatre the next day. Finally a third nurse came and got the TV going and asked me what I would like for tea, so I settled down for the night. After my meal I watched a programme about French explorers who set out to map the Amazonian jungle and make observations of the stars. During their journey one of them contracted Malaria and was treated the only way they knew, which was to insert a lemon into his rectum. It did no good and he died. However the rest of the group pressed on and when they reached Peru they came across a tribe who said they did not die from Malaria because they made a medicine from the bark of a tree. The explorers had stumbled upon Quinine which has been used to treat Malaria ever since.
    “No breakfast for you” was the unwelcome news the next morning, as I awoke in my plain clinical surroundings.
    The day of the short knives had arrived. “The Boss” returned. “Get undressed”. “Put this gown on and I will come back in a few minutes to do it up for you.” Curtains zipped round and she was gone. It wasn’t the thought of the impending operation that worried me; it was the sudden loss of control that was so galling. I decided to get undressed, but not put on the gown, and then stand with my back to the curtains for a few minutes and see what would happen, and in the meantime try to store up a fart for release at the precise opportune moment. A few minutes later I heard the quick tap-tap-tap of approaching footsteps. Curtains flung back! and then a gasp of shock, “Oh oh I thought you would be ready” Whoosh curtains shut. I felt better now. I could afford a little chuckle. My little pantomime had worked.
    Now that I was suitably attired it was time for the real drama to begin, and so with lists ticked off and tags checked, I was trundled down a draughty corridor to the business end of the hospital. We entered an anteroom where gurneys were lined up on both sides, some soft classical music was playing, a nurse came dressed in dark green overalls with her hair covered up. A last check, then away to the operating room. In the narrow corridor outside the anaesthetist was waiting; a sense of danger crept over me. Now it was time for action. I had entered the stunning race. In front of me were ominous double doors with aluminium panels, and I knew that on the other side were men waiting for me with scalpels. The anaesthetist went straight to work fastening a tourniquet around my arm. Out of the corner of my eye I could see he was holding a syringe. He wiped the back of my hand with antiseptic, and then the needle went in… I heard him say “sweet dreams old boy”
    The next thing I knew, I was gazing into the dewy brown eyes of a beautiful woman. Her cream white face was framed by dark hair which fell in tresses to her shoulders and she was dressed in cobalt blue. The sort of blue nuns wear. “Where is this place”? “Am I in heaven”? I asked. “No no you’re in recovery” came the soft reply. “What would you be doing today if you were back at home”? “Oh the usual chores, of managing my house” I said. “The angel” was satisfied with my reply and told me I would be taken back to the ward in a few minutes.

    To be continued………..