Black Friday: What It Is, Does, and Means for the U.S. Economy

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Black Friday shoppers at a Wal-Mart store. Credit: By Ildar Sagdejev

Black Friday shoppers at a Wal-Mart store. Image by Ildar Sagdejev.

Whoever said money can’t buy happiness simply didn’t know where to go shopping.

— Bo Derek

By now, there isn’t a person over the age of four that doesn’t regard Black Friday as a major shopping event, even if they personally have no plans to be within 100 miles of a mall. Indeed, the day is now considered to be the official kickoff of the holiday shopping season, and depending on the store, typically begins in the early morning hours of the Friday after Thanksgiving. Store openings are trending earlier and earlier, with some now getting the jump by starting on Thanksgiving Day.

Black Friday: What Exactly Is It?

Simply put, Black Friday has become a seminal shopping event in the United States. American consumers, always eager for bargains, are drawn to literally thousands of department stores and other retail establishments across the country, looking for deals.

In the context of shopping, the term “Black Friday” started in the 1960s to denote the unofficial point in time when retailers began to turn a profit for the year, not coincidentally beginning with the holiday season when consumer spending begins to markedly ramp up. According to the trade organization National Retail Federation, the holiday season is generally responsible for 20-40% of a retail store’s overall sales, with Black Friday (along with the remainder of the weekend) accounting for 10-15% of those results

Black Friday has also become a leading indicator of the strength of consumer spending for the remainder of the year, and by extension, the overall health of the U.S. economy.

Black Friday: Decoding The Numbers

As mentioned above, the single-day event plus the ensuing weekend’s worth of shopping represents 10-15% of holiday retail sales. Estimates are that consumers spent $57.4 billion this year, 2.9% below last year’s $59.1 billion. Although relatively modest, the decline is noteworthy in that it is the first such decrease since 2009, when the economy was mired in the depths of the recession. Matthew Shay, the chief executive officer of the National Retail Federation, explained the numbers by saying, “There are some economic challenges that many Americans still face. So in general terms, many are intending to be a little bit more conservative with their budgets.” Although the number of people shopping increased to 141 million, the average consumer spent $407.02, down from 2012’s $423.55.

With that said, the increasing popularity of less-profitable Thursday shopping has stolen some of the thunder from Black Friday’s numbers. After surveying more than 700 retail firms, the research firm ShopperTrak released data indicating combined  Thanksgiving and Black Friday sales were actually up 2.3%. “The Thursday store openings did well,” ShopperTrak’s CEO Bill Martin. “But a lot of it was at the expense of Black Friday.” 

Online sales grew substantially this year, up nearly 20% overall. However, according to ShopperTrak, greater than 90% of all retail sales are still generated in brick-and-mortar stores.

Looking at the big picture, consumer spending was front-loaded a tad to Thanksgiving Day as well as having been augmented by booming online spending. Therefore, although Black Friday numbers themselves may have fallen, the overall picture may still be positive for the entire holiday season. As an example of the emerging nature of online business, the preliminary numbers generated by “Cyber Monday” were up 20% from last year.

Black Friday, Cyber Monday, and Early Shopping: What Does It All Mean for the Economy?

Although “door busters” and other perceived deals help to draw millions of Americans to the malls, there is one undeniable fact: retailers would not open during the wee hours of Black Friday if it did not earn them substantial profits. Thus, from a microeconomic perspective, the event helps both the cash flow and bottom line of virtually all the stores that choose to participate.

Black Friday has not only become a culture event, but it is an early leading economic indicator for the health of the economy as it enters the very busy final month of the year. From that standpoint, the reported 2.9% dip may be worrisome. However, booming online sales and a stubbornly resilient U.S. economy which grew 2.8% in the third quarter despite subpar employment and the uncertainties of both the budget deficit and the debt ceiling may compensate.

The National Retail Federation continues to forecast a 3.9% increase in overall spending for the entire holiday season.

So do your part and pull out your charge card. Just don’t knock over a nice old lady while running to get that $50 Android tablet doorbuster.

Resources

Harris, Elizabeth A. Gloomy Numbers for Holiday Shopping’s Big Weekend(2013). The New York Times. Accessed on December 4, 2013.

Townsend, Matt. Black Friday Weekend Spending Drop Pressures U.S. Stores(2013). Bloomberg. Accessed on December 4, 2013.

Malcolm, Hadley. Thanksgiving shopping becomes social, but spending down(2013). USA Today. Accessed on December 4, 2013.

Wahba, Phil. Holiday weekend sales dip on discounts; e-commerce jumps(2013). Reuters. Accessed on December 4, 2013.

Shah, Neil and Knox, Noelle. GDP’s 2.8% Growth Masks Shaky Details(2013). Wall Street Journal. Accessed on December 4, 2013.

MyFoxPhilly. Early Results Show Cyber Monday Sales Up From Last Year(2013). Accessed on December 4, 2013.

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