Title: Does Christmas really matter to the economy?

Sub-title: Retailers love to howl about the economic impact of the holiday season. Much of it is hype. But not all.

 

Christmas shopping season starts on “Black Friday,” In the United States, the day after Thanksgiving. But here in Canada things don’t get serious once the first snow falls. As a result, the white stuff that was dumped all over central Canada this month is great news for retailers, who generate a significant portion of their profits during holiday season.

 

So it should come as no surprise that newspapers, Internet sites and broadcast media have been filled with stories and advertisements hyping the Christmas season. It’s a circuitous relationship; the more holiday shopping stories the media produce, the more it reminds their retailer clients to boost advertising budgets.

 

But media aren’t alone. Many people use holiday season as an excuse to spend money on things. These range from taking a Christmas vacation, to holding parties to buying friends and loved ones a “little special something.” With all of this spending, if you believe the hype, the holiday season must be great for the economy. Or is it?

 

Stimulates economic activity?

Arguments that the holiday season is good for the economy are pretty convincing. After all the money that Canadian consumers spend on gifts helps stimulate job creation in businesses that make the products, market them and deliver them to the stores. According to the Retail Council of Canada as many as ten percent of jobs in many communities are tied to the retail industry alone.

 

However the benefits of Christmas spending go far beyond the direct jobs that are created. That’s because those manufacturing workers, truck drivers and store clerks will all spend much of the money they earn. This in turn will recycle that cash back into the economy. Furthermore, the taxes that workers and the businesses pay help fund government jobs and services. This means that much of those funds will also recycle back into the system.

 

Arguments against

That said, there are those who argue that much of that Christmas spending is vastly inefficient. For example last year, Joel Waldfogel, a professor at the Wharton School of Business, released a book that argued that much of the spending that we do on Christmas presents is utterly worthless. For example a $50 sweater is worth $50 to the consumer who buys it for himself. But if he gives that sweater to someone else, that person may not like either the color, the fabric or the size, and it will thus be worth that much less to him.

 

Furthermore whatever positive economic benefits that holiday season once generated 30 or 40 years ago, when Canada had a strong manufacturing sector, have been vastly reduced if not wiped out since then. That’s because almost all of those television sets, laptops, iPods and clothing that Christmas shoppers will be splurging on this year, will have been made overseas, and that in turn is where a good chunk of the profits will end up.

 

According to one well known polling organization the current weak economy will likely also lessen the “holiday effect.” US consumers polled by Gallup forecasted that they would spend an average of US $715 this Christmas season, down from $907 in 2007. In Canada, where times are tougher too, the forecasted spending numbers have also likely shrunk.

 

Christmas vacations too, which represent another big chunk of holiday season spending, are also not as good for the economy as one might think. That’s because many of the holiday trips that Canadians will be taking will be to the southern United States, Mexico and the Caribbean, all overseas markets, and any spending there will go into their respective economies.

 

As if that weren’t all enough, according to the Retail Council of Canada, Christmas shopping is only good for the Canadian economy if Canadians do their shopping here, and not in the United States, where more have been heading in recent years, lured by the stronger loonie. “Canadian retailers are at the heart of your community,” argues the council. “Fewer sales (here in Canada) mean fewer hours of work available for your neighbours, including young people looking for the experience that provides them with invaluable career skills.”

 

If it gets you to like snow…

That said, the facts are far from clear. For one, many economists would say that the fact that Christmas season encourages people to buy stuff they ordinarily would not, is actually a good thing during tough economic times, because it at least keeps some people working. If nothing else, holiday season statistics form a great indicator for overall economic demand.

 

The bottom line though is that whatever its economic effect, in a northern country like Canada, where the cold weather keeps us inside for almost half the year, anything that makes people cheering to have snow around probably isn’t such a bad thing.

 

 

Peter@peterdiekmeyer.com

 

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