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It's Black Friday, so investors will naturally begin to turn their attention toward holiday spending activity because they recognize that the holiday shopping season will have a large bearing on the overall economy. This effect owes to the impact that the shopping season has on the economy's production cycle and on the overall level of business confidence heading into the new year.

The implications and message of the results from each holiday shopping season vary, of course, and this year's results are important for a number of reasons.

For starters, it will help to fortify either the bull or bear case on the economy, by showing whether or not consumer spending will buckle under pressure from this year's surge in energy costs.

Second, with business inventories having surged at their fastest pace in 20 years over the past seven months, businesses will have to decide whether the economic situation justifies such a buildup. Strong holiday spending would suggest the buildup was correct, but weak spending, on the other hand, would almost certainly lead to a cutback in production, as businesses look to avoid any further buildup of inventories.

Third, a key theory about the recent behavior of the economy will be put to the test. Many have postulated that the moderation in economic activity that took place in early summer was the result of cautiousness ahead of the election. If that's true, then a snapback is in order. If a snapback doesn't occur, then the slowdown will appear to be more fundamental than psychological.

Fourth, the holiday shopping season will serve as a gauge of the inflation environment, as it will test whether or not consumers will tolerate attempts to pass along recent surges in commodity and other costs. If price increases stick, the inflation rate is likely to continue to accelerate into next year.

Strong Holiday Shopping Season Likely

Strength in holiday spending seems the most likely outcome for many reasons, some of which are listed below. The consensus is for sales to increase between 3% and 4%, but it is likely that the sales pace will exceed expectations. If it does, the economy will carry significant momentum into 2005, making it likely that equities will continue to outperform bonds. The odds would also increase for an acceleration in both employment and inflation, raising the potential for significant weakness in the Treasury market, with the yield on the 10-year T-note likely to move toward 4.75% before long.

Here are 10 reasons to expect strength in holiday spending, with sales likely surpassing last year's 4% gain:

    The economy has added nearly 200,000 jobs per month thus far this year compared to a monthly loss of 4,000 jobs last year.

    Housing turnover reached a record level this year, with new and existing home sales both reaching all-time highs. High housing turnover is normally associated with strong retail sales.

    The three-month change in equity prices is strong and there tends to be strong positive correlation between equity prices and retail sales.

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    With the elections over, consumer attitudes appear to be turning more positive. This was quite evident in the latest weekly consumer sentiment survey, which reached a 10-month high this past week.

    Well-managed inventory levels will mean fewer drastic markdowns. This will boost nominal sales.

    Hurricane-related spending will coincidentally occur during the holiday shopping season and provide a meaningful boost to sales.

    The weaker dollar is boosting tourism in the U.S. This will boost sales, especially for high-end merchandise.

    There are two extra shopping days this year between Thanksgiving and Christmas.

    President Bush's re-election will keep recent tax cuts in place and hence provide relief to high-income earners, who are now more apt to open their purse strings.

    Well, just because. (A top 9 list doesn't carry the same cache as a top 10 list.)

    One of the most interesting developments last year was that Black Friday reclaimed the top spot for the best selling date of the holiday shopping season. Since the mid-1990s, the biggest shopping day of the year was usually the Saturday before Christmas, and Black Friday tended to rank in the bottom five of the top 10 shopping days.

    But beginning in 2001 and then again in 2002, Black Friday ranked second and then regained the top spot in 2003. This trend seems likely to continue, especially given that Christmas is occurring on a Saturday this year, making it unlikely that there will be a huge surge on the Saturday before Christmas as consumers will still have plenty of time remaining. With Black Friday likely to take the top nod, tracking sales for this day is back in vogue.

    Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of

    The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of, a popular Web site covering the bond market and the economy. He appreciates your feedback and invites you to send it to