Black Friday is almost here, but American retailers aren’t cheering. The general tone of the Christmas spending forecasts is decidedly gloomy this year. Gallup sees Americans spending an estimated $704 per household on Christmas gifts this season—quite a bit lower than the $770 they forecast last year. The National Retail Federation has similar numbers and predicts gift-giving will go hand in hand with deal-hunting. Nielsen projects a meagre 2% bump in dollar sales this year compared to the last.
So why does this Christmas look more meh than merry? Two things: A set of 2013-specific spoilers and a well-known, long-term trend. Here’s a look at both of them:
The short-term spoilers
Tax-hikes: Remember the fiscal cliff deal? Because Santa certainly does. The deal was, essentially, sequester cuts in exchange for two tax increases: the rich saw their federal marginal tax rate return to 39.6%, up from 35%; and then there were payroll taxes, which rose 2% for everyone. That 2%, in particular, is likely straining the wallets of people at the bottom of the income distribution.
Food stamps: A temporary expansion to the food stamp program approved in 2009 expired at the end of November, leaving the 14% of U.S. households that depend on it with less government help to put food on the table. And House Republicans are pushing to pare-back food stamp spending even further. Families who struggle to cobble together lunch and dinner will probably pass on Christmas treats, however small.
Unemployment benefits: Another recession-era stimulus is set to end at the beginning of next year unless Congress acts to renew it: Extended unemployment benefits. If those lapse, 1.3 million jobless Americans will lose their financial lifeline in January, and hundreds of thousands more in the following months. There’s still a chance Democrats and Republicans will come together to extend the emergency aid — cutting people off right before Christmas looks bad, after all. For now, though, families faced with the possibility of losing unemployment benefits are likely to keep a tight hold on the purse strings.
Consumer confidence: American shoppers were feeling blue in November, with sentiment dipping to a seven-month low according to the Conference Board. And while confidence had dropped in October on worries about the political situation in Washington, the November drop was driven by concerns about the economy, which are more likely to affect actual spending.
The long-term trend
The long-term trend is income inequality. With only the two upper quintiles of American households seeing any kind of meaningful income growth, and the bottom three quintiles still feeling the lingering effects of the recession, the holiday spending landscape has likely become bifurcated.
The rich and the well-off will do the lion’s share of the shopping — the rest will make do with little. No wonder Neiman Marcus has swung back to profit, while Wal-Mart is on track for the worst holiday season since 2009.
Even setting aside the Spirit of Christmas and year-round considerations of social justice, this trend is highly problematic. Extravagant spending at the top is not a very good substitute for solid shopping by most consumers. The rich are fickle. They’re known for shutting their wallets tight whenever the stock market falls. It’s why Neiman Marcus is doing well now — the financial market rally has its well-heeled customers feeling festive again. Its good news for high-end retailers this year, but bad news for the U.S. economy as a whole.
Erica Alini is a reporter based in Cambridge, Mass., and a regular contributor to CanadianBusiness.com, where she covers the U.S. economy. Follow @ealini