Retail records broken over Black Friday weekend, but signs of trouble still ahead

The Takeaway

Retailers were positively giddy this weekend after seeing signs that customers were picking up the pace of holiday shopping — at least during the Black Friday weekend.

That was followed by what IBM Coremetrics data says was a record-breaking Cyber Monday. But the question becomes, can Americans spend enough to get the sluggish economy back on track?

About 70 percent of the American economy is driven by consumer spending, so shopping has considerable effect on the economic engine.

Sheldon Garon, Princeton University professor and author of “Beyond our Means: Why America Spends While the World Saves,” said American households are on the edge, financially, and overly indebted, which makes it hard to imagine they can spend that much, really.

“If you look at median household and their liquid savings, they’ve got about $3,000 in savings and checking accounts. Not very much and not enough to cope with emergencies,” he said.

Daniel Gross, economics editor and columnist at Yahoo Finance, said Americans have a history of finding money to spend on toys for their children at the end of the year. He also said that in the past few years, Americans have been paying down mortgage and other debts.

“While Americans are still leveraged to the gills, they’re slightly less leveraged than they were a year ago. That means if they’re in the mood to spend, they’re a little better able to do so than they were in Christmas 2010,” Gross said.

Ideally, retail sales trending higher are a good thing, but it’s foolish to overlook other data, like savings rates and debt loads, that indicate things aren’t exactly rosy.

“The frenzy we saw over Black Friday … to me that speaks to desperation,” Gross said. “Desperation on the part of consumers who feel like they haven’t had a break in years, haven’t had a break all year. This is their one chance to get some stuff at a really good discount.”

The American consumer has been taking it on the chin for its economic practices for years. Gross said consumers for years were told they spent too much and saved too little, and then when the economy tanked, they started hoarding cash, only to be told they were saving too much and spending too little. 

“The response was ‘Hey, you’ve got to start spending or all of your neighbors are going to be out of a job,’ ” he said.

This is a sign, Gross said, that the American economy needs to be reshaped so that the American economy becomes less dependent on consumer spending and includes more productions. To a degree, that has happened, with the U.S. producing more oil and grains, but more work is still needed.

Garon said 10 to 15 percent should be considered a reasonable savings rate. Even when Americans were “hoarding cash” as Gross put it, they were only saving about 7 percent. That was a big increase from the 1 percent rate it had been it, but still well below many northern European countries.

Garon said the rates has fallen back to between 3 and 4 percent in the past few months.

“That’s clearly not enough,” he said. “There’s this very slow erosion of debt, but a lot of that isn’t actually occurring in the middle and lower incomes.”

Garon said savings rates between 7 and 8 percent would be healthier for the economy, long-term, to serve as a bridge over troubled times in the future.

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