We are officially past the two largest shopping events of the year, Black Friday and Cyber Monday, in a year that has been plagued by higher prices, higher inventories, and an attack on the US consumer. But the consumer doesn’t seem to care.
We just keep spending.
Black Friday sales were estimated to come in at $8.9 billion and Cyber Monday sales were estimated to come in at $11.2 billion, per Adobe Analytics.
Actual sales on Black Friday clocked in at $9.12 billion, 2.47% higher than expected and 2.3% higher than last year, and Cyber Monday sales came in at $11.3 billion, ~1% higher than expected but 2.6% lower than 2021 Cyber Monday sales.
Purchases of electronics led the way, up 221%, smart home items jumped 271%, and audio items jumped 230%, compared to an average day in October.
Electronics also had one of the deepest discounts at about 25% off, with TVs and computers off 10-15%.
Gaming was a popular category, with shoppers snatching up Xbox Series X and PlayStation 5 consoles. The Xbox Series X was one of the hottest Black Friday items. No wonder Microsoft wants to buy Activision Blizzard.
The sign of the times that we are living in is the order share of buy now pay later options.
Compared to the week before Black Friday share of payments using buy now pay later was 78% higher. Meaning billions of dollars were spent using buy now pay later, essentially credit.
Shares of Affirm, a popular buy now pay later company, popped 6.5% on Monday after the results that consumers had overwhelmingly used this option for holiday shopping, but then promptly fell later in the day.
And now we have a flavor for the buying power of the US consumer. In 2020 shoppers spent 32% more during the holidays than they had the prior year, in 2021 that dropped to 8.6% (that is still a very high number), but the forecast for 2022 makes the most sense, actually it doesn’t but I’ll get into that.
The consumer is still sitting on a crap ton of excess money. That money has been dwindling away, but they still have it, and they are going to spend it. And what better time than right now to do so?
There are still over $1.5 trillion in the hands of consumers so it’s not 2022 or possibly even 2023 that we have to be worried about, it’s 2024.
There has been talk about when the recession will happen, or if it even happens in the first place.
People still have and can find jobs.
People have trillions of dollars to spend.
Businesses benefit because of that.
The kicker is, will inflation even come down until the consumer is out of money?
Because if inflation doesn’t subdue until consumers run out of money, then we are in for a hard landing.
Immediate demand destruction means lower inflation for sure, but it also means recession.
But it could also be a smooth path as well. It doesn't have to be a collapse.
These excess savings could be spent down modestly to the point where consumers don’t have anymore and so they start spending rationally and we have moderate inflation again.
Though that is not generally how human behavior operates and we can see that with the pace of credit card debt and volume of purchases using buy now pay later options.
From the information presented to me, I don’t fully see the case for a recession in 2023. I think there are far too many employed people and job openings coupled with high excess savings for the consumer (70% of GDP) to be damaged enough to dropkick the economy.
I believe that is a bad thing for the stock market, doesn’t mean we are going down further from here, although it could mean that, but it likely means we won’t be recovering fast or soon.
Stock may maintain a range-bound pattern through 2023 only returning a modest full-year return, however the good news (which is actually bad news) is if the recession comes sooner.
That is what we are all waiting for anyways.
I think the biggest things people can take away from this post are:
1: Don’t spend like a lunatic
2: If you can, buy depressed financial assets (make sure you talk to someone on this)
A recession will likely come but that isn’t any different than what has happened before, recessions come and go. Markets fall and rebound, you just have to understand human behavior, learn to control your own, and come out on top.
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