The Weak Holiday Season: Why It Matters to All of Us

It seems like only yesterday it was Christmas, and hopes were high for a better fiscal holiday season than the last few. After all, the reports kept saying that we were experiencing a recovery from the recession, jobs were up, and more people had disposable income to work with. This, in theory, would boost us even further and help us to achieve the kind of stability that we could only dream of a few years ago.

However, the numbers for the holidays were not nearly as high as economists would have liked. In fact, Black Friday sales were down by almost 1.2 billion, though there was some recovery towards the end of the season with a number of last-minute and online purchases. But why does holiday retail matter so much? Why should the average consumer care how many people broke down doors trying to buy the newest talking doll or video game system for their kids?

woman using credit card in transaction

As it happens, the holiday sales season is closely linked to the market and its success. One of the major reasons for this is the simple fact that retail makes up the largest portion of our GDP by far, at about 70%. With such a huge amount of our efforts focused on only one sector, we’re bound to care about how that sector does. Unfortunately, this same industry makes most of its money at one time of year – the holidays. Which means, essentially, that we’re crossing our fingers every Black Friday to see how the country does financially for the year.

Some may argue that this, in itself, is a recipe for disaster and that we should diversify. However, until such time as another industry begins to have a greater sway on our GDP, we have to focus on meeting our yearly and holiday sales goals.

Of course, there will be other factors involved in the intake for the year, and the state of the economy itself works in a rather cyclical fashion with regards to retail. For instance, if many people only have enough money to get by, they’re not going to be spending a lot over the holidays; likewise, those who are worried about the future of the economy, their job security, and the stock market, are not going to want to rack up hundreds or thousands of dollars in credit card debt.

When these people don’t spend during the 4th quarter, businesses don’t get the income they were counting on. These companies don’t hire as much that year, and may even have to fire some workers, cut benefits, and even rescind customer discounts; these people, in turn, can’t buy as much. The cycle continues.

But why? Supposedly, things are looking up. Gas is cheap, more people are working, and the country is doing better. As financial analyst Dawn J. Bennett would be quick to tell you, there is no confidence in the system because several signs are pointing towards another recession. Time will tell, however, whether our underwhelming holiday numbers are a herald of this.

Dawn Bennett, Host of Radio Show “Financial Myth Busting,” Interviews Mike Pento, Founder and President of Pento Portfolio Strategies and Author

Recently, Dawn J Bennett, CEO and Founder of Bennett Financial Services and Host of Financial Myth Busting, interviewed Michael Pento, founder and president of Pento Portfolio Strategies, and the author of the book The Coming Bond Market Collapse. Pento offers extensive knowledge of the U.S. bond market and is a specialist in the Austrian School of Economics. On January 15th of this year, Mike published an article titled ‘A recession worse than 2008 is coming,’ which was widely read and was featured on the Drudge Report. An earlier article from January 5th was titled ‘Pento’s predictions for 2016,’ where he wrote that the S&P is going to fall minimally more than 20 percent as it finally succumbs to the ‘incipient global recession.’

“It looks like that is sort of coming true,” said Pento “50 percent of the S&P 500 has already dropped 20 percent, so it looks like unfortunately it’s going to come true a lot sooner than even I thought.”

He continued, “I’ll tell you this, the average drop of the S&P 500 in the last six recessions has been 37 percent. So if this coming recession is just the average variety, then I would expect the S&P to drop 37 percent, which puts us about 1300 on the S&P 500. So that’s a really big hit. But, as I wrote about in my piece that appeared on CNBC and Drudge, I don’t know what the Federal Reserve is going to do to pull us out of the next recession. In the great recession of 2008, the Federal Reserve took the Fed funds rate, which is the interbank lending rate, from 5.25 down to zero by the end of 2008. And that provided consumers and corporations, and even the federal government, with a lot of debt service relief. And that helped bring the economy out of the great recession, it also boosted asset prices, it boosted the stock market, it boosted bond prices, it boosted real estate. So the point is now the Federal Reserve is leveraged 77 to 1, they have almost no capital, it’s way more over-leveraged than Bear Stearns or Lehman Brothers or any of those financial institutions were before the great recession. But, more importantly, the Fed has no more room to lower the borrowing cost to the private and public sector. That is one of the main reasons why I fear this inevitable next recession. By the way, the U.S. has suffered recession for about every five years since the beginning of the Republic.”

Pento goes on to say that he wants to open others’ eyes to what is happening, such as the national debt being 102 percent of GDP – an increase of 37 percent. A natural function of recessions is a decline in federal revenue, which means that debt and deficits are going to skyrocket. He said, “Deficits are going to go back to north of a trillion dollars very quickly—this year, in my opinion, if we have a recession, and by all accounts we’re probably in one right now, Dawn. If deficits rise over a trillion dollars, we have 19 trillion in debt, a 102 percent debt-to-GDP. Wouldn’t one expect it to be natural that we have some spike in interest rates, without any kind of QE currently going on at the moment? If that happens, a la 2012 in Europe, we are going to turn this recession into something much, much worse.”

Read more from Dawn J Bennett here: