For better or worse, the United States economy is tied to retail.  Consumption easily accounts for more than two thirds of the nation's GDP, and end of year holiday shopping season is always closely watched and analyzed.  Retail spending last year was extremely weak in the aftermath of the global credit crisis and unprecedented government action attempting to stabilize a sputtering financial system.  Much of the panic of last year has passed but challenges remain, as nearly 3 million more people are unemployed than at this point last year.

For all intents and purposes, the most crucial season for retailers is nearly half way over.  It begins each year on the Friday following Thanksgiving, often referred to as Black Friday.  The weekend that encompasses Black Friday is immensely important to retailers, and it often sets the tone for the rest of the season.  This year's Black Friday results were mixed, as more shoppers were out in stores (also includes the web) this year than last, but they also spent less money on average.  We would consider that weekend to be moderately successful for retailers, especially with the continued growth of ecommerce sites (Cyber Monday: The New Black Friday).

As the data continues to trickle in, it seems apparent that opinions still vary greatly on what this season will look like, even in comparison to last year's poor performance.  This morning, the International Council of Shopping Centers and Goldman Sachs (GS) released a survey showing that weekly retail sales were 2.6% higher than a year ago.  This is a decent result, but sales slipped on a week over week basis by 1.3%.  Explanation for the results fell on ICSC's chief economist Michael Niemira, The now annual post-Thanksgiving week lull in consumer holiday-gift buying once again showed up as consumers continued to be well behind on their holiday-gift buying completion pace.  Clearly, by saying the consumer is behind on their holiday-gift buying completion pace suggests he hopes that Black Friday will not be as good as it gets, and consumers will finish the holiday season stronger.  Also, they maintained their holiday season estimates that sales will improve by 1% over a year ago.

However, you get an even less rosy picture from a Gallup poll that went directly to consumers.  Gallup's findings suggest that, despite improved consumer sentiment, average spending per day is 21% lower than it was at this time last year.  Think about that.  Consumers are spending 21% less at stores, gas stations, restaurants, and online than in the tremendously painful consumer spending environment of last year.  Even if Gallup's survey overstates consumer's thrifty behavior, anything even near this level could be very problematic.  Remember that the Gallup survey was self reported so it is subject to debate over the accuracy, but it is informative none the less.

What can we make of this data?  While the results of the two surveys suggest very different levels of spending, we think it is clear that thus far holiday spending has been weaker than expected.  The ICSC finds moderate increases over last year, but still says that holiday shoppers appear to be behind.  Likewise, the Gallup poll is more anecdotal than data, but there can be no denying that if it is accurate there will need to be a major burst of spending in the next few weeks.  At Ockham, we are concerned that retail stocks have already been priced for an improved holiday shopping season.  Realistically, we do not think expectations are set too high, but if sales disappoint it could get ugly for a number of retailers.  With persistent unemployment and the collapse in consumer credit, we would not take anything for granted.