Despite the buzz about consumers spending more this past holiday season, we might have to chalk all that talk up to too much eggnog.
Consumer spending barely rose in December—0.1 percent, according to the Commerce Department—and without vehicle sales actually shrunk 0.2 percent, falling short of forecasts and leaving retailers and economists alike puzzled.
"It was a surprise because we had gotten some decent reports of sales during the entire holiday shopping season," says Joel Naroff, president and chief economist at Naroff Economic Advisors. "But neither November nor December was really robust."
But it's not that consumers weren't spending—retails sales jumped almost 8 percent for the year—they were just spending differently.
Part of the reason sales failed to live up to lofty expectations is that the shopping season started sooner than usual, he says. Promotions started as early as September, so instead of seeing a sales boom in late November and December—traditional months for holiday shopping sprees—consumers spent at a more continuous pace, effectively spreading holiday spending over an additional month or so.
Also, sharp upticks on Black Friday and Cyber Monday could have inflated expectations for sales overall, Naroff says. "To some extent, we may have seen a concentration of purchases on those key days and things like keeping stores open all night may have made something like Black Friday more of an event than a sales day," he says. "It's like we were barely buying and then bought an enormous amount more."
Retail categories that usually get a bump from holiday shoppers were left disappointed this year. Demand for appliances and electronics was off by nearly 4 percent and food and gasoline purchases were down as well. What did Americans spend their money on? They dined out, bought some new furniture, and hit the building supply stores hard. Apparel and sporting goods also got a bump.
"The economy continues to get better, but a robust recovery is a long way off," Naroff says. "With promotions starting in September, households bought early and often. As the season wore on, the need to buy eased and so did demand."
Still, we might yet see an uptick in retail sales from gift card purchases, but those numbers won't come out for a couple of months.