What Strong Holiday Sales Say About the American Consumer

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Holiday sales soared in 2010. Season-over-season retail sales growth was 5.5%, according to MasterCard's SpendingPulse. The report indicates that retail sales excluding autos were $584 billion for the period from Nov. 5th through Dec. 24th. That makes it the best holiday season for sales since 2005, and the growth was also better than 2009's 4.1% rise. This sounds great, but does it indicate that the American consumer is really back?

The answer is a little complicated. First, given that this is was the best holiday sales tally in five years, it's pretty safe to say that American consumers are feeling a lot more comfortable about their economic prospects. Despite the fact that nearly 17% of Americans are underemployed, spending is quite strong. Most of those who are employed must not be worried about job security. 

But looking at the bigger picture provides a better sense of how Americans are feeling. For starters, consider Black Friday sales. They were up somewhere between 6.4% and 8.7%. That's a larger increase than the overall 5.5% growth. This implies that Americans were eager to spend more than they were over the past few years, but they leaned the spending toward bargains.

The SpendingPulse report reveals another kernel of information confirming that Americans were aggressively seeking deals. eCommerce was up an impressive 15.4% season-over-season. While some people have moved to online shopping due to convenience, more are probably doing so for the lower prices that you can often find online. Again, this indicates that Americans are spending more, but doing so more judiciously, as bargains are the priority.

This observation doesn't prove that Americans are still uncomfortable with the economy; clearly they're willing to spend more, as overall sales increased considerably. Instead, it shows that consumers are more careful about how they're spending, which indicates that they want to make sure that they're getting the most for their money. In other words, Americans are becoming more savvy shoppers, because they want their money to go further. 

While this is good news for Americans' fiscal health, retailers are likely less excited about this sort of spending. It implies that a large portion of spending during the holidays was skewed towards sales and bargains. This implies that retailer profits probably grew, but not as much as overall sales, since profit margins were likely smaller this year due to all of the bargain-seeking.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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