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Tempering retail sales expectations on holiday season 2017.

The US Holiday Season started with high anxiety for the Retail Industry as online retailers registered high volume of sales on Black Friday 2017. Pre-holiday season reports signaled not much change in consumer spending. Federal Reserve’s Surveyed retailers have repeatedly stated that “Baby boomers are now at ages when they spend less on consumer goods like clothing and warehouse, while younger adults are more apt to shop online rather than in stores” (Beige Book 11/2017). Still, many retailers keep hoping for a big jump in sales this incoming December of 2017. Although the generation cohort explanation may help retailers to make sense of the turbulence, data shows a story both of moderation, and of cycle dampening toward a new normal rate of change.

The effect of the online-sales boom and the Great Recession disruption over retail sales appears to be coming to an end by normalizing growth rates of 2.5% for the holiday season – meaning December. Such dampening effect in the data helps to assuage anxiety among retailers given that the chances for an actual decrease are small when compared to the chances of a slightly small but steady sale growth.

The first insight that data (Census Bureau) on December retail sales give is the change in growth rate before and after the Great Recession. Like many other economic metrics, December retail sales also show a break during the years 2007 and 2008 (Graph 1). The before and after of the economic crisis yield different rates of sale growth for December. Before-crisis sales change rates averaged 5.1% from 2000 to 2007. However, after-crisis sale change rates averaged 3.6% from 2010 through 2016 (Graph 2). Data shows clearly that the growth path slowed down since the Recession. Nevertheless, retailers’ perception still fuels higher expectations for the holiday season -which leads to confusing conclusions and inefficient allocation of resources.

Graph 1.

Graph 2.

Higher expectations have no data grounds.

Those higher expectations have no grounds on data as it shows a dampening effect. Data shows December sales started to stabilize around 2 plus rate of change. A basic Seasonal Arima model (with parameters (p2,d1,q2)S4) shows a dampening effect that will most likely affect rate change this incoming Holiday season (Graph 3). The implication of this effect on the estimation of future December sales is twofold. In my opinion, neither should retailers expect sale increases over 3.1% nor decreases below -0.03% for the period ending December 31st. The model estimates a 3.7% (α=.2) increase in sales for December 2017.

Graph 3.

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