Just a Holiday Reminder: Black Friday Is Utterly Meaningless

You'd never know it from the media coverage, but Black Friday sales are essentially meaningless noise in the U.S. economy.

You know the economy and stock market are in deep trouble when the Mainstream Media elevates one essentially meaningless metric to "The One Meaningful Statistic" and then trumpets it slavishly. One such meaningless metric is Black Friday.

The Media has glommed onto Black Friday for a number of flawed reasons, number one being the MSM's ceaseless drive to reduce all complex problems down to something that can be expressed in a sound-bite voiceover and a video clip of a crowded mall.

The MSM loves binaries: two parties, two final contestants, and if Black Friday is "good," i.e. sales exceed last year's consumerist bacchanal, then the economy is "healthy." Any weakening of the consumer's lemming-like drive to buy, buy, buy means the economy is "weak."

This is of course absolutely backward: consumers buying shiploads of poor-quality crap made overseas means the economy is is still on the slippery slope to implosion, as debt is being used to fund consumption while capital formation (savings) remains pathetic.

Since most of the crap (and it is crap--most Americans have either forgotten what actual quality is or they have never experienced it) is made overseas, the "boost" to the economy generated by rampant charge-card consumption flows to only one slice of the the U.S. economy: corporate profits.

U.S.-based global corporations skim most of the profits made when crap is made overseas; how much profit do you think the Chinese and Taiwanese suppliers of the iPad and iPhone components make? If you guessed 1%-2% of their part of the cost, you're right. So if a $300 device costs $100 to actually manufacture in China, the Chinese suppliers make a dollar or two. Apple skims about $100 and the distribution/retail channels skim the other $100.

I have covered this dynamic in depth over the years: for example:

Trade with China: Making Out Like a Bandit (March 30, 2006)
Much of China's manufacturing is owned and managed by foreign corporations. In effect, the companies aren't Chinese at all; only the workers are Chinese.

Trade and "Trade War" with China: Who Benefits? (October 5, 2010)

The key dynamic to understanding trade with China is U.S. corporate profits.

Although nobody dares state the facts lest the cargo cult fetish lose its power to conjure up another mind trick, holiday retail sales are a trivial slice of the U.S. economy, and the fluctuations in those sales year to year are essentially noise.

As I noted in Please, Santa, Let This Be the Last Christmas in America (that's supposed to "save" the U.S. economy) (November 23, 2010):

Holiday retail sales are a mere 3.4% of the U.S. GDP.

Despite the Financial and Mainstream Media's pathological obsession with holiday retail sales numbers as proxies for the "health" of the entire U.S. economy, holiday sales don't really change much:

2007: (pre-recession) Holiday sales: $516 billion
Holiday sales as percentage of annual retail sales: 19.5%

2008: Holiday sales: $495.5 billion
Holiday sales as percentage of annual retail sales: 18.6%

2009: Holiday sales: $504.8 billion
Holiday sales as percentage of annual retail sales: 19.4%

So the start of the 2008-09 recession saw a drop of $21 billion in holiday sales: statistical noise in a $14.7 trillion economy and a modest 4% decline from pre-recession levels. 2009 saw sales rise by about $10 billon (about 2%), so a rise of 2% from 2009 would return holiday sales to pre-recession levels.

Now the propaganda machine is cranking up to announce that a 2% increase in holiday retail sales means the U.S. economy is off and running. Santa, please, please, please order your reindeer to stomp the life out of the idiotic fantasy that Americans buying a few billion dollars more needless junk from China is any sort of evidence that the U.S. economy is "growing at a healthy clip."

The entire retail sector is 7.9% of the GDP compared to a 21.4% share for the FIRE tranch (finance, insurance and real estate) of the economy.

Does anyone seriously believe that 3.4% of the economy can possibly leverage up the entire GDP with a razor-thin increase of $10 billion in holiday sales?

Santa, you have my deep gratitude if you could jam the propaganda machine so that this is the last Christmas in America where trivial retail sales are hyped as the bellwether for the $14.7 trillion U.S. economy.

The cargo-cult fetish of focusing on Black Friday sales is worse than meaningless--it is profoundly misleading. What the economy needs is not more mindless debt-based consumption (the "aggregate demand" that the cargo cult sees as a "folk cure" for everything that's wrong with the economy) but the exact opposite: paying down debt, reducing the share of the national income skimmed by a parastic banking sector, a boycott of low-quality crap (i.e. 90% of what's bought on Black Friday) and an evolution beyond a model of "growth" that's dependent on ever-rising debt and consumption of low-quality, often needless junk made overseas to benefit Corporate America's bulging bottom line.

In summary: these are the retail sales you're looking for; the economy is "healthy," move along. Nice mind trick, and all you need is ceaseless propaganda, a credulous audience and a stock market seeking some excuse for a short-covering rally as the global economy implodes.

Of related interest:

The Last Christmas in America (December 23, 2010)

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