Merry Christmas Candor family! No matter what you are doing this holiday season, I’m sure you will all be thankful to close out this year and start again. We began 2022 with high hopes and an even higher stock market. Several clients have commented about this, wondering when we will get “back to where we were.” Don’t hold your breath-it may be a while.
Frankly speaking, the values of the stock indexes were unsustainably high at the dawn of this year. The Federal Reserve went into action to combat this with a “tightening” of monetary policy in attempt to slow down the overheating economy. They raised the fed funds rate (our floor rate) six times since March and are poised to do so again mid-December. We haven’t seen this much tightening since 2006-2007. When money gets expensive, spending and borrowing slow down, but there’s a delay to the cooling effect. What we are experiencing today is likely from the earliest rate hikes and will likely continue in the upcoming months.
We have seen earnings slow down over the last quarter in many areas of the U.S. economy. When goods and services get more expensive, that makes it harder to make ends meet, first for consumers, and then for companies. We seem to be hanging in limbo while we wait for the next shoe to drop. Could it be retail? We will soon find out!
Black Friday, for many stores and retailers, is an annual sales bookend. But it hasn’t always been that way. The earliest origin of the term “Black Friday” was from 1951’s journal Factory Management and Maintenance. The term was first used to describe the day that most factory employees ask off for work… to go shopping… after Thanksgiving Day. This wasn’t considered a good thing at first. But later the negative was rebranded as a positive, and clever advertising succeeded in transforming the forlorn name into what we know it as today. (Because who wouldn’t want to be profitable, right?)
Today’s technology and prolific marketing have people shopping on Thanksgiving Day and looking for deals online during Cyber Monday/Cyber Week. According to CNBC, consumers spent 9.12 billion Nov 25th shopping online, a new record for Black Friday. The day after Thanksgiving saw an increase of 2.3% percent from last year.
But just hold your reindeer, Santa. Aren’t prices up more than that? So, if people spent 2.3% more than last year online, but gifts like electronic devices and toys are up 4.8% from last year, wouldn’t that mean that we bought less stuff on the most aggressive online shopping day of the year? (See U.S. Bureau of Labor Statistics thru Oct 2022 for pricing data.) Combined with the fact that tight-budget deal-prone tech-spoiled Americans were absolutely frenzied over toys and electronics, those online sales figures might be as disappointing as Ralphie’s pink bunny pajamas from Aunt Clara.
What about across the board? Analytics company NPD reported on December 2nd that sales revenue was down 5% for the week spanning Black Friday, making it the sixth consecutive week of lower revenue vs. last year. This took us back to retail levels lower than pre-covid times (2019). We are transitioning from easy money to tight—from shortages to surplus inventories, a fact which weighs on corporate balance sheets as inventory costs rise with inflation, and wages teeter at record highs. If sales don’t support expenses, jobs will likely be cut to balance corporate budgets. This has historically been a catalyst for recession as payroll falls and unemployment rises.
Every cloud has a silver lining, though. The good news for Christmas 2022 is that spending is still good enough while employment sustains us through the largest spending season. Even though the numbers may look stronger on paper than they really are (adjusted for inflation), there are still dollars flowing into corporate earnings. Compared to 2008, which set a generational record for worst retail sales, we are looking pretty good for 2022. This may bring mixed signals, though, as the goal of the Fed is to curb inflationary spending and wages, which they will likely remind us of next week.
As we approach the Christmas season, let us remember the blessings of our pasts and consider how those have sustained us over the years. And with that knowledge, may we always show love and kindness to those who are less fortunate and in need. Those are the true blessings that are unaffected by inflation.
Always with candor,
*The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
*The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.