Black Friday Is No Barometer

Shoppers in search of a deal. Photo by Rob Stothard/Getty Images.

Black Friday-also known as "The day I get to trample someone online to save 8 bucks on a Nespresso"-gets heralded as the most important day of the year for both US retailers and consumers. Stores launch an advertising blitz and offer big discounts, promotions and specials called "doorbusters" to entice shoppers to come out and spend. And who doesn't love a deal? The Brits recently imported Black Friday,^[i] and retailers across the Atlantic fear overwhelming demand this year.^[ii] But despite all the hype, we offer investors this friendly reminder: One day doesn't determine the health of the US consumer or retailer, let alone the whole economy.

If Black Friday were truly as big a deal^[iii] as headlines say, the data would show its impact. Many experts spend a lot of time forecasting how retail spending will look this time of year, with particular focus on Black Friday. While we have no idea how the preliminary numbers will look until December (and even that can get revised), history shows Black Friday alone doesn't swing retail sales in a noticeably significant manner.

Consider the current economic expansion and bull market, which started in 2009. Non-seasonally adjusted retail sales data-which we use in this case because the seasonal adjustment is designed (in part) to eliminate the impact of the very pattern we are discussing-show Black Friday hasn't made November the hottest spending period of the year. If Black Friday is truly a difference maker, November's numbers should reflect this. But in the six years shown, November has accelerated from October only half the time. (Exhibit 1) This remains true even when you strip away food services and gas station sales, leaving an arguably "purer" look at holiday shopping. (Exhibit 2)

Exhibit 1: US Total Retail Sales, Month-Over-Month Change Since 2009

Source: US Census Bureau, as of 11/24/2015. Non-seasonally adjusted retail sales, monthly data, from 12/31/2008 - 12/31/2014.

Exhibit 2: US Total Retail Sales (excluding Food Services and Gas Stations), Month-Over-Month Change Since 2009

Source: US Census Bureau, as of 11/24/2015. Non-seasonally adjusted retail sales, monthly data, from 12/31/2008 - 12/31/2014.

The holiday season is far longer than just one day, of course, despite the blanket media coverage of the insanity that will undoubtedly ensue at the crack of dawn Friday. Black Friday itself has evolved from one day to more of a period. Beyond Friday, there is also Small Business Saturday, Sofa Sunday^[iv] and Cyber Monday to round out the Thanksgiving weekend. Some retailers have started with the holiday sales right after Halloween, leading to a "graying" of Black Friday. As the Washington Post's Sarah Halzack lightly noted in her argument for renaming Black Friday:

Black Friday is still hanging on as our catchall name for the kickoff of the holiday shopping season. But it's no longer a very good one, because the event has metastasized into several days and Friday is losing ground as the most important single day of the shopping bonanza.

And the data highlight this too. Those non-seasonally adjusted retail figures show December, not November, is when sales spike. For all the folks we see camping out and rushing into stores early Friday morning, it seems most Americans prefer to wait a little bit to do their shopping. Perhaps many of us are too sleepy from a big Thanksgiving feast to make the trip to the mall. Or maybe we hold our shopping until after we write our letters to Santa in December. Regardless, we suggest placing little importance on projections and forecasts about Black Friday-it isn't a good gauge of the US consumer's health.

Whatever the data end up saying about this fleeting and narrow seasonal tradition, we'd suggest reasons for investors to be thankful abound. The US economy looks in fine shape, and that trend looks likely to continue, whether consumers shop till they drop or not this weekend. The second estimate of Q3 GDP showed the economy grew by a 2.1% seasonally adjusted annual rate, up from the initially estimated 1.5%. While consumer spending ticked down a bit-from 3.2% to 3.0%-this still exceeded this expansion's average, 2.3%. It also contributed 2.05 percentage points to headline growth. October's personal consumption expenditures-a more complete gauge of consumer behavior including retail and services spending-rose 0.1% m/m, the ninth straight rise. And forward-looking indicators like The Conference Board's Leading Economic Index (LEI) suggest growth is likely to continue, too. After two small declines of -0.1% m/m in both August and September-driven largely by negative stock market volatility-LEI rebounded strongly in October, rising 0.6% m/m. Nine of the ten components rose, led by the most telling indicators: the interest rate spread and the Leading Credit Index.

So rather than reading too much into what Black Friday means for the retail sector, the US consumer or the economy overall, we suggest investors have fun with it. If you enjoy scouring your local newspaper and the Interweb for deals, all the more power to you. If you prefer avoiding the hustle and bustle, we recommend a brisk autumn walk (weather permitting) to burn off some of those Thanksgiving feast calories. Investors have much to be thankful for this year, and it isn't contingent upon whether shoppers can work through their tryptophan-induced haze to snap up deals.