This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Monday, November 23, 2009

Economy May Prove a Grinch

Will Christmas 2009 turn out to be the season of scrooge?

As Black Friday approaches, around the world all eyes focus on retailers. While consumers prepare for some great deals on holiday shopping, investors and economists prepare for an influx of data that will provide significant insight into the health of the global economy.

Most readers know that Black Friday is the Friday after Thanksgiving. Fewer understand why: the majority retailers operate at a loss from January through November, and make their profit during the holiday season – or get “back in the black,” in accounting terms.

After Black Friday, bargains for this holiday season are likely to keep getting progressively better as the holidays draw nearer. However, physical inventory will likely fall as retailers make it their top priority to liquidate inventory.

Of course, holiday shopping this year is likely going to be weighed down by several economic factors. With the unemployment rate near 10% and the so-called “underemployment” rate, which includes workers whose hours have been reduced, over 17%, many Americans will be forced to cut back on their holiday spending.

Recently several big banks made headlines when they hiked up interest rates on credit cards to nearly 30%. This too will undoubtedly have a negative impact on retail sales this season as many shoppers will find it much more expensive to finance their holiday shopping.

Finally, with mortgage delinquencies and bankruptcies nearing all-time highs – with little sign of slowing – the retail sales numbers for this holiday season will provide valuable insight into Americans’ state-of-mind in these trying times.

The real question is whether Americans have the discipline to cut out unnecessary spending, or whether priorities in this country are so mixed up that holiday shopping actually takes precedence over a mortgage.

Despite these negative factors, retailers will surely see a spike in sales this holiday season, although numbers will likely be much less impressive when compared to seasonal sales of previous years.

However, no matter what the numbers are they will undoubtedly be spun in the most positive way possible to suggest that the worst is over and the economy is on the road to recovery.

For economists it is even more important this season to look past the numbers when drawing conclusions. For example, looking at same-store sales this year won’t give an accurate representation because too many competitors have gone out of business (case-in-point: Circuit City). Instead, it’s important to look at overall retail sales to weigh the success of this season’s shopping.

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