Nouriel Roubini's Global EconoMonitor

Roubini Global Economics – Holiday Season Kick-off: North America and Europe Retail Sales

United States

Roughly one year ago, around the Thanksgiving festivities, the National Bureau of Economic Research (NBER) announced that the U.S. recession started in December 2007. One year later, though the U.S. economy is in recovery mode, retailers are approaching the holiday season—which accounts for slightly less than one fifth of yearly U.S. retail sales—with some concern.

A sharp collapse in U.S. consumer spending since mid-2008 led to a particularly dismal holiday retail season in 2008. As per U.S. Census Bureau estimates, core retail sales (which exclude autos, gasoline and building supplies) fell 1.1% y/y during November and December 2008, compared to an average 4.6% y/y increase in holiday season sales over the past decade. Total retail sales suffered a larger collapse, falling 9.5% y/y. After collapsing in 2008, retail sales showed signs of stabilizing over the summer of 2009. While auto sales fluctuated sharply during recent months due to the government’s “cash for clunkers” initiative, core retail sales have risen for three consecutive months as of October 2009, creeping up at a pace of about 0.5% m/m. Entering the 2009 holiday season, the recent uptick in core sales offers hope for better than anticipated holiday retail sales.

Economic indicators, however, suggest a note of caution. The renewal in U.S. consumer confidence over the first half of 2009 faded. Successive grim reports on the employment situation revealed no quick end to labor market woes, lowering consumers’ income expectations. According to the October 2009 Reuters/ University of Michigan Survey of Consumer Sentiment, in October 2009, consumers reported worsening personal finances for the thirteenth consecutive month, the “longest and deepest decline in the sixty year history of the surveys.” The poor state of personal finances has driven consumers to reduce debt at an accelerated pace. In September, consumer credit fell for the eighth consecutive month at an annualized pace of 7.2%. The poor health of personal finances, labor market uncertainty and the ongoing household balance sheet repair will continue to promote frugal behavior by U.S. consumers. The Conference Board consumer confidence surveys tell a revealing story: consumers’ plans to purchase big ticket appliances have declined in the run up to the 2009 holiday season. This is a bit unusual as plans to buy big ticket appliances usually display a sinusoidal pattern with a trough in the month of October and then increase and peak sometime in the following spring.

A measure of weekly retail sales released by the International Council of Shopping Centers (ICSC) and Goldman Sachs indicates that same-store sales flattened over the first three weeks of November, though compared to 2008 sales are up by a promising average pace of 2.9%. The National Retail Federation projects retail sales to fall 1% during this holiday season, compared to an average 3.4% annual gain in holiday sales over the past decade. After the sharp slide in 2008, a decline of “only” 1% or even a small positive gain in 2009 holiday sales may seem like a welcome number; however, accounting for the base effects of a dismal 2008 season, the underlying reality for retailers remains grim for this holiday season.


North of the border, Canadian retail sales have recovered, consistent with a resilient domestic demand and the revived housing market. However, despite climbing for seven out of the last nine months, the improvement has not yet been robust and sales remain over 3% lower than in September 2009. Canadian domestic demand has been restrained by a still weak labor market, where job gains have been mostly in part-time work, which along with a weak external sector have keep Canadian output roughly flat this quarter. As tax incentives on retrofitting houses have expired, some of the related purchases may soften in coming months. Moreover, consumer confidence has weakened going into the holiday season and consumer surveys suggest lower holiday spending than in 2008, when Canada was just entering recession.

United Kingdom

Uncertainty surrounds the UK retail sales outlook. With unemployment continuing to rise, credit conditions remaining tight and economic confidence subdued, the forecast for holiday sales is not overly optimistic. However, retail sales figures for October rose 0.4% while September’s data enjoyed an upward revision of the same amount. Clothing and household goods proved the foundation for the increased retail activity amid hopes that the holiday sales period can continue to experience improvements in retail figures despite constrained domestic demand.


The Spanish retail outlook is extremely constrained. One in 5 workers could be unemployed by the end of the year and household consumption is severely dampened by depressed economic sentiment. Disposable income has fallen and will continue to fall while precautionary saving has risen significantly. Retail discounts are ongoing and are likely to continue as fierce price wars persist into the new-year. Yet consumer confidence is likely to curtail any significant impact this could have on retail figures.


The Greek economy failed to escape the recession and is particularly affected by deteriorating labor figures. With the true extent of Greece’s problem unknown until into the fourth quarter 2009, unemployment had risen only mildly and is likely to accelerate as the holiday season approaches. With a 2% rise in unemployment likely to take the rate to 10% by year end, retail sales are likely to feel the pinch of dampened household expenditure. A yearly rise is still likely from 2008 figures, but a smaller increase than first hoped is the outcome of a deteriorating economic picture in Greece.


Portugal has not witnessed the same fall in private consumption as some of its counterparts. Its decline has been relatively contained to less than -1% in 2009 and retail sales are likely to rise as the holiday period approaches. The relative insulation of the Portuguese consumer from the effects of the global depression can be traced to the constrained increase in unemployment and the rigidity of the labor market. Nominal wages have grown in 2009 and consumer confidence has not plummeted as heavily as in Spain or Ireland for example.


The recession in Ireland has been exacerbated by a collapse in domestic demand with private consumption expected to fall by over 7.5%. Labor market conditions have deteriorated, as have retail sales figures, and little change in circumstance is expected before the holiday period. A yearly rise in retail figures is unlikely despite the poor performance in 2008 as Ireland struggles to contain its collapsing household consumption levels. Consumer confidence has fallen as jobs continue to be cut across the fragile economy.


During recent months, private consumption unexpectedly helped stabilize the German economy—a trend that is likely to continue during the 2009 holiday sales season which contributes almost 20% to annual retail sales. Despite the sharp contraction of the German economy, nominal retail sales only declined 2% y/y in the first nine months of 2009 and retailers still expect that “Christmas Business” in November and December will bring in an additional 73 billion euros. While workers expect to be affected adversely in the coming months due to rising unemployment and declining wages, consumer sentiment has recovered substantially from a year ago. Unemployment has been kept in check so far with the help of government subsidized short-work schemes. Disposable income has been boosted by the German welfare state’s extensive economic stabilizers as well as by the favorable inflationary environment. Still Christmas retail sales are unlikely to exceed their 2008 levels since the expiration in September of the cash-for-clunkers program will act as a drag on sales in the coming months. Mark-ups will remain under pressure as retailers are trying to attract more business through discounting.


The French consumer has been remarkably resilient during the current economic downturn and French holiday sales in the November/December period might even exceed results from previous years. Despite a sizeable increase in the unemployment rate, retail sales are unlikely to suffer significantly during the 2009 holiday sales period due to the supportive effect of France’s extensive automatic stabilizers and low inflation. Consumer confidence staged a comeback in recent months and bounced back to its January 2008 level. Moreover, French retail sales will continue to benefit substantially from France’s cash-for-clunkers program, which will only expire in 2010. While traditionally the French winter sales season kicks off in the second week of January, a new law now allows for more flexibility on the timing of sales. As a result, retailers are likely to offer steep discounts in an effort to attract additional business in the pre-Christmas period.


Holiday retail sales in Italy make such a substantial contribution to annual turnover that many retailers only manage to post profits due to sales made in the last two months of the year. Traditionally, Italian retail sales in the November/December period are more than 30% above the average of the ten preceding months, even though the official sales season does not start until after January 6. The 2009 holiday retail sales are likely to disappoint compared to previous years due to the ongoing economic uncertainty. As a result, consumers are still too worried about rising unemployment and are saving a larger percentage of their incomes. Not even the favorable inflationary environment is expected to boost retail sales, which have been contracting for the past 30 months. Tax incentives for durable goods and subsidies, in particular the cash-for-clunkers program, are expected to have a positive impact on retail sales in the coming months. Italy registered the greatest deterioration in retail margins in the eurozone, indicating that only aggressive discounts prevented an even larger fall in sales.

5 Responses to “Roubini Global Economics – Holiday Season Kick-off: North America and Europe Retail Sales”

GuestNovember 30th, 2009 at 3:12 pm

Improve your Italian: that would be: “dove sono tutti i capi?”And your name yould be: “capo di tutti i capi”.Probably you wanted to say: “where are all the firsts”? “dove sono tutti i primi?” (first = primo) and you should sign: “primo fra i primi”, “first of all firsts”.Sorry I’m sensitive when language is massacred.

AENovember 30th, 2009 at 6:09 pm

It is interesting to note that Mike Baker of Deutsche Bank North America said in regards to consumer electronics, shoppers will be concentrating on new video games and flat panel televisions, which questions the validity of the Conference Board’s consumer confidence surveys. In addition, dollar stores performed among the best of all the retailers this weekend, foreshadowing the frugal character of the American consumer in this climate. We are also seeing a shift in the competitiveness of online retailers, who saw their sales rise by more than 10% this time last year due to strategic marketing deals by the websites. Nevertheless, these figures involving online and low-priced retailers are not included in the NRF’s figures. Still, holiday revenues will be probably hover just around negative territory as there is no end in sight to the weakness in consumer demand and unemployment at 26 year level highs.On the more bullish side, however, some people from Deloitte Research project that sales will be the same as last year.

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