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Will a Lackluster Black Friday Sink the U.S. Economy?

Wal-Mart Prepares For Black Friday Shopping RushWal-Mart Prepares For Black Friday Shopping Rush
Time for fresh reindeer? It's going to take Santa 30 days to come to town...Photograph by Joe Raedle—Getty Images

The holiday shopping season is crunch time for many retailers. And this year many economists are predicting retailers will come up short.

Thanksgiving will be a big test of that. On Sunday, National Retail Federation will report how stores did on Black Friday weekend. And many expect sales this year to be lackluster. A recent survey by Boston Consulting Group predicted that Americans would be “tight and frugal” in coming weeks. “This holiday season, consumers are going to be cautious and frugal. Expect at best a 4.5% increase in spending over last year and a tepid Black Friday,” says BCG Senior Partner Michael J. Silverstein.

Poor Thanksgiving numbers may lead some to further question the health of a number of struggling retailers like Macy’s (M) or Gap Inc. (GPS). It also may cause some to rethink the idea that the economy is improving, especially given the fact that the U.S. GDP is increasingly composed of consumer spending.

But a number of economists suggest reading too much into Black Friday’s results would be a mistake, especially this year. For one, the fact that 20% of all retail sales occur in November actually shows just how much of our shopping we do the rest of the year. If all shopping were spread evenly throughout the year, we’d expect about 16% of sales to happen during the holiday shopping months of November and December. So a relatively “tepid” holiday shopping season doesn’t necessarily have to have a large effect on the economy as a whole.

What’s more, High Frequency Economics wrote in a research note this week that while Black Friday weekend results get a lot of attention, its track record of predicting how overall holiday sales will do is “abysmal.” Last year, for instance, the NRF’s Black Friday survey suggested a 11.3% drop in spending from a year ago. Yet, holiday sales actually rose 4.1% last year. In 2010, 2011, 2012, on the other hand, the Black Friday survey significantly overstated the strength of retail sales. “In general, we believe the importance of the holiday shopping season for overall economic trends is greatly exaggerated,” wrote HFE’s Chief U.S. Economist Jim O’Sullivan.

And that may be even more true this year. Retail sales growth in 2015 has been weaker than economists were expecting, especially when considering how cheap gas prices—which should put extra spending money in consumer’s pockets—have been for more than a year now.

But this slow down in retail sales growth hasn’t actually dragged down overall economic growth. On Tuesday, The Bureau of Economic Analysis revised up its estimate for third quarter economic growth, helped by increased corporate investment and more home building.

This uptick in business investment is one reason why some economists are confident that economic growth will at least match last year’s rate of 2.4% and help power the economy to slightly faster growth next year. One of the traits that has defined the recovery following the Great Recession is very weak business investment, which is needed to fuel productivity and wage growth.

But as Neil Dutta, Head of Economics at Renaissance Macro Research points out, history shows that following periods of slow capital growth, a reversion to the trend usually happens. “If past is prologue, we should expect business investment spending to accelerate from its 2015 pace,” Dutta wrote in a research note to clients last week.

Not only will increased business investment boost GDP growth, it could also accelerate wage gains through productivity growth. And if wages rise, we could begin to see retail sales rise from the mediocre levels that has characterized 2015.