Why the Grinch won’t steal Christmas

The status quo loves the status quo, which goes a long way toward understanding why most forecasts are projecting a dismal holiday season. The National Retail Federation says sales during November and December will decline 1%, following last year’s 3.4% decline in holiday sales. Retail Forward and Deloitte both contend holiday sales will be flat with the prior-year while the International Council of Shopping centers projects a 1% increase.

It’s easy to understand why these groups are so pessimistic about the spending outlook. Unemployment is high, so there is less money to be spent overall, and those who do have money to spend are presumably going to be more cautious about how they allocate it during the holidays. That is a terrible combination for the retail industry, but the good news is this year will be better than last year, and it may not be as bad as the experts predict, as consumers will have plenty of reasons to feel good about things in the months ahead.

For example, food price deflation and relatively cheap gas will make it less expensive to get together with family for Thanksgiving. Meanwhile, deals will abound this Christmas, with deflation a major factor in such popular holiday categories as electronics and entertainment with prices already falling for gaming consoles, digital cameras and various Apple products.

The economy may not be in great shape and deflation will pressure sales growth, but don’t be surprised come January if this year’s batch of holiday forecasts proves overly pessimistic. After all, when economic conditions are bad the easiest thing to do is forecast they will remain that way or to project improvements will come modestly. The inverse of this situation was in effect just a few years ago when the economy was roaring and the good times were gong to last forever.