Higher inventories, earlier discounts, and consumers saving rather than spending makes for a bad holiday season

For retailers, the period between Black Friday and the end of the year can sometimes constitute 70% of their yearly revenues.  And at a time when the economy desperately needs a boost, this year is turning out to be not so kind to stores that are already discounting items 10 days before Black Friday is set to begin.

This week, a number of economic data points are forecasting not just a bad holiday shopping season, but a horrendous one.  And with the El Nino keeping Autumn weather rather warm in most parts of the country, the talking heads on Wall Street and at the Fed cannot use the weather as an excuse this time around.

But there is no need for excuses as the primary data is showing three important factors for low turnouts at the stores.

Inventories are way too high

Inventories climbed earlier this year as weak growth abroad and a stronger dollar left manufactured goods to pile up in U.S, O’Sullivan said. Bloated stockpiles bolster the headline growth figure, while a drag on GDP occurs as companies trim those inventories to match demand.

Household consumption, which accounts for almost 70 percent of the economy, grew at a 3 percent annualized rate, less than the previously estimated 3.2 percent. – Chicago Tribune

Holiday discounts are starting up to 10 days before Black Friday begins

When stores discount prices it usually means that customers aren’t buying at levels necessary for profitability.  And this year is no exception as a number of chain stores such as Walmart, Target, and Best Buy have already begun ‘pre-Black Friday’ sales well in advance of November 26.

When Macy’s, a store closely associated with Christmas, says there is trouble brewing ahead of the holidays, it is enough to send the world of shopping into a tailspin.

The retailer of “Miracle on 34th Street” warned Wednesday that its stores were awash with merchandise after a sluggish fall season and that slow business would force it to go all-out on discounts during the holidays.

Macy’s shares plunged about 14 percent, dragging other retailers down, too. The Hudson’s Bay Company, which owns Saks Fifth Avenue and Lord & Taylor, fell 5 percent, as did Kohl’s. Burlington Stores fell about 7 percent. – NY Times

Consumers are saving much more this year, and spending less

Consumer spending

Consumers last month pocketed most of the savings from the plunge in gasoline prices, pickup in wages and lower heating bills caused by milder-than-usual temperatures, signaling households will remain frugal heading into 2016. Low inflation and gains in employment indicate Americans have the wherewithal to boost spending should confidence firm.

“People are still a little bit worried that the economy is not back up to full health,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “Job growth improved clearly in the month of October, and we’re seeing better wages and salaries. That should fall to the bottom line, and certainly will be positive for consumers’ spending ability. They of course have to have the confidence to be able to spend, and that still remains kind of shaky.” – MSN Money

The bottom line is that Americans are now expected to spend less than usual this holiday season, and retailers who have stocked inventories going back several months will be hurting mightily come the end of the year.  And while this year may be the best in close to a decade for opportunities to buy discretionary items at deep discounts long before Santa comes landing on their roofs, the overall economy and GDP numbers will reflect what many alternative economists have cited for most of 2015, that we are back in recession and that the consumer is pretty much tapped out.

Kenneth Schortgen Jr is a writer for Secretsofthefed.comExaminer.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.

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