U.S. recovery underway: Fed
But Christmas could still be tough for retailers
Last Updated: Wednesday, November 25, 2009 | 3:33 PM ET
CBC News
The Federal Reserve believes the American recovery is underway, but flagging consumer sentiment could hurt Christmas sales, according to data released Wednesday.
The majority of governors of the U.S. Federal Open Market committee said the economy is improving but still faces a slow path back to stronger economic growth, according to the transcript of their most recent meeting, held in the first week of November.
"Most participants now viewed the risks to their growth forecasts as being roughly balanced rather than tilted to the downside, but uncertainty surrounding these forecasts was still viewed as quite elevated," the minutes of the meeting said.
That means the U.S. central bank now views prospects for economic growth as better compared with earlier in 2009 when the same group saw the risk of further economic contraction as very real.
Little Christmas cheer
However, consumer sentiment could still mean a harsh Yuletide for retailers.
The University of Michigan consumer sentiment index fell for November, dropping 4.5 per cent compared with a month earlier. The well-watched indicator of consumer optimism could be a sign that, while the U.S. economy is improving, Christmas sales might be tepid.
Indeed, November's index could counteract a decent showing in October's personal income and spending figures.
Both personal wealth indicators rose in the month, which means consumers have more cash in hand for Christmas. But if individuals are worried about their job prospects or the overall economy, they might bank that money rather than buy more gifts.
Slashing prices
December sales are crucial for retailers — some bring in as much as 50 per cent of their overall revenue in that month.
Some stores already have begun cutting prices in order to draw customers.
The Michigan Retailers' Association surveyed its members in October and found that 23 per cent of respondents said they were beginning seasonal sales earlier than they did last year.
"Retailers have been holding special holiday promotions for several weeks already. It's all about getting the season off to the best start possible by attracting early shoppers,” said James Hallan, association president and chief executive officer.
