Federal Reserve & Interest Rates

Retailers everywhere put on sales and discounts for the traditional Black Friday shoppers.  Consumers were lined up as early as late Thursday evening to be the first few in line to get the best deals on computers and flat screen televisions.  While foot traffic in stores was up 4.8% from last year, spending was down by 3.5%.

Is it inflation?  Sales may not have looked as enticing to many penny pinching consumers out there.  Discounts offered by electronic stores and department stores did not seem to be as unbelievable as they may have been in previous years.  The first people in lines at many of these places may have gotten a good deal on one particular item, but everyone else was stuck with not so generous price reductions.  With energy prices up, could it be that even the retailers couldn’t afford to give away too much on sale?

Minutes from the most recent FOMC meeting suggested that consumer spending had been solid for August and September.  Turmoil in the financial markets, however have placed a strain on consumer confidence.  With many consumers struggling with mortgage payments and others undergoing or on the brink of foreclosure, Christmas shopping is a tightly budgeted event.  Credit is tight, and so is disposable income.

Perhaps there will be more online spending this year.  The increase in foot traffic in store indicated that more people are looking to buy things at a cheaper price than before.  According to the National Retail Federation, “Cyber Monday” is the new name for the Monday after Thanksgiving, where the online shopping begins.  Online retailers are offering online only sales as well as free shipping for the day.  Perhaps more people will find good deals online, and the economy won’t do so bad for the fourth quarter.

Concerns about the economy may have made many shoppers hesitant to spend as much on gifts this year.  Inflation isn’t totally out of control, but energy prices have remained high.  Thus far its effect on core inflation has not been devastating, but it might be putting a strain on overall household spending.  The season isn’t over yet, and there is still more shopping to do for the holidays.

We’ll see what the spending reports say for the fourth quarter early next year.  Maybe if we see better sales, we will shop some more.