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Monday, October 25, 2010 10:44 AM

Gallup: Consumers Plan on Spending Less this Christmas

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A new Gallup poll says Consumers Issue a Cautious Christmas Spending Forecast

Gallup's initial measure of Americans' 2010 Christmas spending intentions finds consumers planning to spend an average of $715 on gifts, roughly on par with the $740 recorded in October 2009.

The $25 decrease in Americans' holiday spending intentions between October 2009 and October 2010 (not a statistically significant change) contrasts with a $61 year-over-year reduction in intended spending found last October and a $108 reduction found a year prior.

Gallup will update this measure in early November and again in early December. The December forecast has historically been a strong indicator of the direction of holiday retail sales, forecasting the extent to which sales will be higher or lower than the previous year. The October figure is not always predictive of the December forecast.

Americans' average prediction of the total amount they will spend on Christmas gifts this year is not highly encouraging for retailers, who may be hoping for a return to pre-recessionary buying habits.

The good news, however, is that the $25 decline in this year's October forecast is far less than what Gallup found in each of the prior two years at this stage in the season and, according to Gallup modeling, would point to a fairly flat year in holiday retail sales if it holds at this level through December.
Retail Key Unknowns

We don't know three things yet.

1. What's Priced In
2. Actual Spending
3. What Type of Stores Will Do Best

This is the third consecutive decline. On that basis any decline is significant. However, the final poll in December is a better forecast than this poll.

Perhaps people will feel better (or worse) after the mid-term elections. Certainly we are going to see sweeping changes, with Republicans highly likely to take the House, and a decent outside chance of taking the Senate as well.

Given the rebound in the stock market, there is a decent chance of a pickup in luxury items. In aggregate, however, the easy guess right now is flat +- 1% for overall spending.

Consumers are still tapped out and in need of deleveraging.

Projections Not In Line With Hiring Plans

Gallup projections are not in line store hiring plans. Note that Stores Plan Increased Hiring While Offering Increasingly Large Discounts. If stores hire a lot of temporary help, expecting a better season than happens, profits will suffer, especially if there are increasingly large discounts.

One key question is "What's Priced In?" We may not know that until January, but I suspect a lot more is priced in than flat +- 1%.

Mike "Mish" Shedlock
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