Income Growth, Increased Consumer Confidence Make for Black Friday Optimism

New data may make for increased consumer activity on the busy shopping weekend

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A new round of economic data gives reason to be optimistic about spending on Black Friday. Today, the Commerce Department reported that disposable income was up 0.3 percent in October, and the most recent Thomson Reuters/University of Michigan survey of consumers also showed that consumer sentiment moved up 3.2 points, to 64.1, in November.

In addition, the National Retail Federation estimates a 2.8 percent retail sales increase in November and December combined. Economic forecaster and consulting firm IHS Global Insight likewise foresees holiday retail sales 4.2 percent higher than last year's $453 billion. With additional money in their pockets, consumers could provide a modest, but much-needed boost to the economy with their holiday shopping—particularly during the critical post-Thanksgiving weekend.

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Of course, in a sluggish economy, it would be a mistake to say that the outlook for holiday spending—or consumer spending in general—is unequivocally rosy. Consumption was up by a paltry 0.1 percent in October, indicating that consumers were not out picking up early holiday deals, says Joel Naroff, president and chief economist at Naroff Economic Advisors.

Naroff also says that continued discord on Capitol Hill might offset some of the potential benefits of rising income. "Rising income is a good sign that people have the wherewithal to spend this holiday season but the sour attitude created in no small part by the disaster in Washington may affect sales," he wrote in a commentary today.

And though consumer sentiment is up for its third consecutive month, having recovered from August's dismal 55.7, the current reading of 64.1 is still well below last November's 71.6.

Whatever boost there is to holiday sales this year, it may not be evenly distributed among businesses, say some experts. According to financial analysis firm Sageworks, small businesses have seen marked growth over their larger competitors since the end of the recession.

The downturn hit privately held retailers much harder than their publicly traded counterparts, but those private retailers, which tend to be smaller businesses, have bounced back from the recession more strongly. Private retailers have seen growth of over 5 percent in the last two years, Sageworks says, compared to growth between 3 and 4 percent for public companies.

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"This movement reflects an increased sentiment toward supporting the local business community, more personal interaction, and more comfort in a smaller shopping environment," says Mike Lubansky, a senior analyst at Sageworks. Whether the strong small-business growth will continue past the holiday season, however, is difficult to predict.

"Some of that [growth] could just be a rebound effect and some of it could be due to this buy local, smaller retail response. As far as whether that trend will continue beyond that, it's hard to say," says Lubansky.