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Small Christmas for Retail

Holiday spending will be anemic in the U.S. as consumers worry about overextending their credit. Pro or Con?

Pro: Disappointment Under the Tree

Of the many negative financial issues affecting families today, credit pressures certainly top the list. Research performed by our firm, America’s Research Group, attests to it.

First, based upon our survey of 1,000 adults from Nov. 1 to Nov. 4, we found 47.5% have higher credit balances today than a year ago. Of those, 47% say they will spend less because of that debt. Also, 52.2% have noticed their monthly payments are higher today, and of those, 52.5% believe these higher minimum payments will cause them to spend less this holiday season. So it’s not surprising that 31.8% feel worse today than a year ago. Last year, 18.5% felt worse. In other words, that negative feeling had nearly doubled.

This Christmas, 30.4% feel they will spend less, compared with only 20.5% last year. That means 46.5% will wait until the 50%-off sales before doing most of their Christmas shopping. This number was 39.5% last year—it has gone up 20%. Credit-card debt is definitely causing one in every four families to spend less. One more point needs to be noted: 26.8% will spend less due to higher gas prices, and 32.4% feel higher gas prices will hurt their Christmas spending.

When studying these people further, we see those with higher credit-card debt are the same ones feeling the pinch from higher gas prices and higher food prices. These three negative issues are interrelated, and subsequently Americans with higher credit-card debt feel pressured not to increase spending. Credit-card debt is here, and it will cause one in four families to spend less this Christmas.

Con: Turning Up the Siren Song

Analysts suggest the long-awaited consumer cutback in spending is just around the corner as the subprime crisis has the financial sector struggling with hundreds of billions in losses. The damage is such that analysts are predicting the steepest drop in consumer spending in decades, possibly as much as $200 billion to $300 billion, or 2% to 3% of personal income.

But have these analysts paid a visit to the average American household during the holidays? They would surely find no shortage of enthusiasm for conspicuous consumption. As they anticipate a decline in consumer spending, mall operators and stores are tempting consumers—by starting their midnight openings on the day after Thanksgiving in order to give holiday shopping a head start. Reports say that Gap (GPS) is slated to have 150 stores open at midnight across the country, while toy chain giant KB Toys is looking to have 100-plus stores do the same.

So why is it most retailers seem unperturbed by setbacks in consumer spending? Well, let’s face it: The holidays are by and large associated with shopping, and there is no reason for that to immediately change. As much as overspending may be of reasonable concern to consumers, parents are not about to have their children rise gleefully from bed on Christmas morning to find a half-barren tree downstairs. Nor are friends going to make an overnight decision to cancel their Secret Santa exchanges or no longer give their loved ones something special for the holidays.

Moreover, there is little that can be done to put the brakes on consumer expenditure in a country where borrowing is almost always an option. Adjusted for inflation, consumer spending has risen in every quarter since 1991. Even if credit-card companies are feeling increasingly cautious when it comes to lending, consumers still have $3.8 trillion in unused borrowing capacity on their credit cards. And retailers have no qualms about urging buyers to apply for their proprietary credit cards, so if a Macy’s (M) Star Rewards card or a Victoria’s Secret (LTD) Angels card is available at the drop of a hat, the “buy now-pay later” module will remain mostly intact for the holidays.

Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek,, or The McGraw-Hill Companies.

Reader Comments


I'm going to agree with Ms. Siddiqui here. No matter what surveys and statistics say and how budget conscious Americans become in the credit crunch, we simply can't underestimate the impulsive shopping that takes place on the holidays. Americans spend hundreds of billions of dollars on Christmas shopping alone, and according to Marketing VOX (a market research entity), Americans aren't changing their plans in the 2007 holiday season, just looking toward the Internet to save a few dollars here and there.

It's far more likely that corners will be cut somewhere else such as luxury goods, new cars, and restaurants. Any drops in holiday spending are likely to be small fractions of a percent as the holiday spirit of millions of Americans forces them out to buy those mandatory stocking stuffers and Christmas tree gift pyramids for yet another year. A drop amounting to a rounding error? Maybe. Anemic spending? No way.

Oh and a personal side note. Why have the holiday marketing gimmicks started in the last week of October this year? Isn't it just a wee bit early to advertise a December 25th holiday on October the 29th? Or could this be companies acting on the belief that there will be a plunge in consumer spending and trying to coax customers into doing their holiday shopping before the crunch really arrives?

Mike holland

Those gas prices and food prices and everything else are killing me. Every time I go to the store, it's more. I'm sick of it. I ride my bike to work so I don't have to buy gas. I take my lunch. I don't buy coffee at Starbucks. My wife and I have cut back in many ways. If everybody would cut back in some way, maybe the prices would go down.
Mike/Kathye Holland
Grand Junction, Colo.


I have a pretty good income. Better than most. But we are fairly frugal and watch things carefully. I cannot remember the last time I bought a cup of coffee. We make it. Travel cups are cheap. When I mention how much they spend on a cup or two of coffee a day to my employees and friends, they always agree with me, but continue to buy it. My point is that it takes a lot of momentum to change people's behaviors. Even with the cost of energy, I'm not sure we are there yet.


We are tightening the belt this year. Last year we were flush. This year we are starting a business and using credit, savings, and cash to make it happen. All are tapped out--reflecting the financial state of many, maybe most, American families since their financial resources are severely constrained. We will not, indeed cannot, spend as we want this holiday season.

BusinessWeek Reader

For my family, this year's holiday spending will be about half of what we normally spend, and we've already finished our gift shopping. The only thing left on our holiday budget is Christmas dinner.

We have virtually no debt, and we probably save more than many families earn. The reason for our lower holiday spending is not because we don't have money or credit, or because we overspend on other budget items. It is because we have been forced to cut into our quality-of-life budget in order to maintain our savings goals.

Increasing costs, for excluded CPI items (such as food and fuel), and rising medical expenses (including the part that is actually counted as income by statisticians) have just about driven us to the point where quality-of-life is non-existent. And now, because of the lower interest rates, the threat to our savings goals has been increased exponentially.

We have been trying for many years to get ahead in this world, but it seems like the only ones who win are the ones who extend themselves with credit. For example, subprime lending has encouraged people to go out and buy homes they could not afford, and then to refinance those homes for cash to buy toys and go on vacations. All with nothing down--no equity whatsoever.

Now, those who have lived within their means are being asked to pay the price by accepting lower returns on their savings and paying higher taxes to fund relief programs for those who have been on that spending spree. What a fool we have been for following the example of the ant instead of the grasshopper. Now the ant has to pay for all of the fun the grasshopper has enjoyed.

We don't even own a home, yet we are to be expected to help pay for the homes of people who bit off more than they can chew.

It was lower interest rates that got us into this mess, yet the answer to the problem seems to be to lower interest rates again. It is said that one of the characteristics of insanity is when the same action is repeated, but a different outcome is expected. So, lowering interest rates to combat problems caused by lower interest rates sounds a lot like insanity.


I think the consumer is struggling, but I think when it comes to stock prices, a lot of this is already built in. We have a situation--where stocks are trading at deep discount prices--that assumes the companies will struggle through this Xmas and into next year.


"Now, those who have lived within their means are being asked to pay the price by accepting lower returns on their savings and paying higher taxes to fund relief programs for those who have been on that spending spree."

There's no indication that there will be any sort of bailout. There were some whispers here and there, but considering the sheer amount of money involved in the sub-prime write-down, the likelihood of a bailout is zero to none. How do you make up for about $2 trillion in lost equity, almost as much as the U.S. budget itself, with a tax hike unless that tax hike is about 75% of current tax rates?

As for lower returns on savings, that has nothing to do with interest rates for lending. If you have money saved in your bank and don't like the returns, blame your bank for giving you a poor rate, although almost every bank worth its salt offers 5% annual yield savings accounts for balances of more than $5,000. Some even offer 5.25% and 6%, and these savings accounts have nothing to do with housing or sub-prime lending. Banks create such accounts to attract pools of hard cash for their capital, and the consumer benefits by having a high rate of return.

If you're talking about mutual funds, that depends on the mutual fund. Not all of them are winners, and if they're doing poorly, the managers are to blame and not housing lenders.

"It was lower interest rates that got us into this mess, yet the answer to the problem seems to be to lower interest rates again... So, lowering interest rates to combat problems caused by lower interest rates sounds a lot like insanity."

Actually it doesn't. The problem isn't low interest rates; it's low-interest rates shooting upward as they adjust so lowering rates keeps the recipients of sub-prime ARM loans from defaulting by keeping their payments down and allowing them to keep their houses. The fewer defaults, the less property lost in the housing market and eventually, less cash. It's not insanity; it's using the hair of the dog that bit you as a remedy.


Well said above. I would suggest the couple also think about buying now and taking advantage of the low rates and buyer's market, so they get a piece of the American dream they feel so left out of.

keisha pinkerton

This Christmas I will not be having one, because it is hard enough to try to keep the bills going. I have not had a Christmas in two years, and this makes three. I try to forget about Christmas, because it breaks my heart to think about all that Christmas is about and not being able to celebrate, because of the way society is today.

Guiedo in FL

Maybe this should be the year for a Christmas buying boycott? With all the lawsuits by the ACLU over Christmas trees, Creche scenes, Santa Claus, holiday lights, etc. It's time for the American consumer to say, "Enough--I'm not spending on Christmas." Then let the retailers, wholesalers, etc. fight the ACLU.

Truly an idea whose time has come.

Carl Karcher

Despite media reports, retailers will do everything they can to extend credit to shoppers this holiday season. Ever notice how the holiday shopping forecasts issued each November project downward sales momentum and yet virtually every year, sales growth is reported? While they may take a minor hit in 2007, you can bet eager consumers will empty their wallets and/or max out their credit cards to keep the economy humming. After all, it's become the American way.


For the last five years or so, my extended family has practiced a great new holiday tradition: No gifts.

Wow does it feel great! No endless shopping at crowded stores for overpriced junk that will end up at next summer's garage sale. Instead we are allowed to spend money only on group items like food and beverages.

There is no pressure to buy junk for everyone, and instead we just enjoy one another's company. Radical concept, eh?

So I say, "What spending cutback?" We quit the insanity, and I recommend all of you to as well.

Pam Scott

Between Black Friday and Cyber Monday, I'm not too worried for these retailers:,1540,2219779,00.asp.


Last year was our splurge year, bought laptops for the three teens, but they will use them thoughout their high school years, so it really was a "necessity" purchase from my viewpoint.

This year I hope to spend one-third less than normal. My husband and I usually do not exchange gifts which we think saves us a bit of money. We cut corners by spending nothing on Christmas decorations or outdoor lights. We lost most of ours in a flood a couple of years ago, but will make do with what we have left for now.


To Keisha Pinkerton who said she won't be able to have Christmas:
Some years, our "gift" pile is pretty low. My husband and I don't exchange presents to save money. So what? I had several Christmas mornings where there wasn't one gift under the tree for me, except what my kids made in Sunday school and wrapped so carefully. I still have some of those creations, and I put them out every Christmas and love them more every year. I thank God for the Sunday school teacher who guided my children in making my "only" Christmas gifts that year. It was wonderful. My kids were so eager for me to open their gifts.

To those who say they can't have a Christmas I say yes, you can have a Christmas. Just find a Christmas Eve church service and attend. It's the memories, the scents, the glitter, the spirit of love in Christmas that makes it Christmas. Make some cinnamon apple cider and take it to a neighbor with kids. Help the parents assemble their gifts or toys. Take an elderly person to do their shopping. There's lots of Christmas to be had, just get out and find it.


I find the products on the market to be nothing but junk made in China, etc. I will be very selective when purchasing for my four-year-old this holiday season. Only quality products and if it is possible--to buy what is made in the U.S. of A. Love my country.
Merry Christmas


I sincerely think it's all about how you perceive the holiday and how you manage your spending. Something will suffer if you are overspending on material objects that can be bought throughout the rest of the year. There are many thoughtful items out there that are never discovered, because too many people are busy trying to impress others (including their children). People need to realistically look at their budget and spend within its means--that may mean buying everyone those cheap but cute popcorn tins, cookies, nuts, picture frames, ect.

Mary Hartrey

I'm all for less focus on buying gifts and more on getting back to the true meaning of Christmas.

However, I've found a new way to make my buying more meaningful by shopping online via because the 200 or so merchants on that site donate a percentage of my purchase prices to any nonprofit I choose at no cost to me. I like the fact that any of my online shopping benefits nonprofits at no cost to them.
Mary Hartrey

Pam Scott

Anyone think of the repercussions of Cyber Monday on business? Turns out many consumers do their shopping from work, and that exposes their companies to all kinds of security breaches.


We live in a material world, and people forget that Jesus is the reason for the season. Why are the churches not as crowded as the malls? Because all we care is about material things and trying to impress others. I thing if we would have God in our hearts, we would have a different perspective on Christmas.

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