The Obligatory, Annual Black Friday Primer

With Thanksgiving drawing near, the holiday season—and holiday shopping season—is about to officially launch. Yes, this Friday is the legendary Black Friday. Already, headlines from Sydney to Sausalito are stressing its importance—supposedly even bigger than normal this year—as it could herald either recession or further rate hikes, depending on which way things go, with downstream impacts on stocks. No doubt, Black Friday may be big for some shopkeepers and has gone increasingly global. But even this year, claims of its macroeconomic importance seem vastly overrated. Let us explain.

We have annually reminded readers of this venerable(?) website that Black Friday retail sales aren’t the economic barometer so many headlines posit this time of year. Look, here is the unspoken reality: During the holiday season, actual news tends to slow. US markets will be closed on Thursday and open only half the day Friday, limiting interest in them. So you get more human-interest stories. Feel-good tales of charity and family, which we enjoy. Coverage of traditional events and practices that take us back to childhood. And, many folks’ traditions include visits to retailers on a day off, making this fodder for coverage and (sigh) analysis.

Of course, some say Black Friday got its name because retailers were in the red all year until this date. (We have seen others suggest it is tied to the fact workers didn’t show up at factories the day after Thanksgiving, darkening the buildings, and of course it conjures images of doorbuster stampedes, which can be a little dark.) Maybe this holds true at some level, but the veracity is dubious broadly for publicly traded firms. Consider: The S&P 500 Consumer Discretionary sector closed both Q3 2022 and Q3 2023 with positive earnings growth.^[i] We doubt those are outliers. After all, Black Friday is just one day of the year and the holiday season increasingly spreads sales throughout the month of November (if not late October) and well into December.

But that basic logic usually doesn’t rate highly in headlines—and this year is no exception. With rate hike and recession fears still plentiful, most headlines cast Friday as all-telling about where these allegedly huge factors for the economy swing. In the US, Bloomberg argued that not only would Black Friday retail sales be a harbinger of recession, but that spending by one subset of consumers (more affluent folks) would be particularly telling about whether the economy was too cold.^[ii] In Australia, The Sydney Morning Herald sweated whether spending would be too weak (citing consumer surveys indicating more Aussies intend to spend less than more) or too strong, indicating potential overheating and inflation pressure—thereby ushering in another Reserve Bank of Australia (RBA) rate hike.^[iii] Pretty skeptical takes, in our view.

These are likely the tip of the iceberg, with many more set to emerge by Friday. But when you read them, consider: Not only is Black Friday one day of many, but across the developed world, most spending is on services, not goods. As Exhibit 1 shows, services are presently over 65% of US personal consumption expenditures, the broadest set of household spending. And that is down from the prepandemic period, when services gobbled up an even greater share. Despite this, though, attention on Black Friday will center on retailers, which are in the goods category. It constitutes hyper-focusing on the minority of spending. It seems faulty to draw large conclusions from roughly one-third of consumer spending.

Exhibit 1: Services Dominate Spending

Source: US Bureau of Economic Analysis, as of 11/21/2023. Share of real personal consumption expenditures, Q1 2013 – Q3 2023.

As for possible monetary policy implications, we have long reminded readers to avoid speculating on this. In Black Friday’s case, who knows how the RBA’s new governor might interpret strong spending on goods? The RBA has already confounded expectations, pausing then unpausing multiple times—just when headlines seemingly expect the reverse. Central bankers will interpret incoming data according to their own economic philosophy, bias and probably their moods. You can’t forecast those factors. The good news? There is no need. The shock factor of global central banks’ reversal on inflation and policy in early 2022 is gone, as stocks rising in parallel with rate hikes the last year-plus show.

The harangue over Black Friday is much ado about very little, in our view. If anything, it shows you sentiment remains pretty dour, even after the sharp rally the last few weeks. And that is bullish, as it keeps expectations low. So enjoy your Turkey Day, and your turkey. Enjoy the time with family. Enjoy trips to the overly crowded stores or the less-stressful jaunt to online storefronts. Don’t worry that retail results on a single day are going to be make-or-break for the economy and stocks. The likelihood of that is very low.