The Economic Significance of Black Friday
What is Black Friday?
Black Friday is one of the largest shopping days of the year, taking place on the Friday following Thanksgiving Day, when stores tend to offer deep discounts. It has historically been viewed as the beginning of holiday shopping.
In recent years, Thanksgiving weekend sales have expanded from just Black Friday to include Small Business Saturday and Cyber Monday. However, with the rapid adoption of e-commerce in recent decades, more and more consumers begin holiday shopping as early as the end of October.
What is the Economic Significance of the Retail Industry?
Retail encompasses many parts of the economy and supply chain. It’s how producers of goods and services get their products into consumers’ hands. Retailers either get their goods directly from manufacturers or through a middleman such as a wholesaler. That means retailers are the last step in the supply chain.
Consumption accounts for a large portion of the US gross domestic product (GDP). According to the National Retail Federation (NRF), retail contributed $3.9 trillion annually to GDP in 2021, making up 19% of the overall US economy. This is up from 16% in 2014.
NRF also notes that since 2010, the retail industry has been the top contributor to job gains, making up 15.9% of the 28 million increase in private sector jobs.
What is the Significance of Black Friday to Economists?
As retail spending in general is significant to economic health, the largest day of shopping in the year is significant in and of itself. Many economists see Black Friday as a litmus test for consumer confidence.
It has been especially important in recent years, as economists are eager to see the impacts of the COVID-19 pandemic and then the impacts of inflation on consumer discretionary spending.
Black Friday in 2022
Despite stock market volatility, high inflation and steep interest rate hikes, estimates of spending this holiday season remain high. The National Retail Federation, which tracks and forecasts holiday spending, is forecasting a 6-8% increase in sales from 2021. That would put the holiday retail sales figure between $942.6 billion and $960.4 billion.
According to the most recent US Bureau of Economic Analysis (BEA) report of Personal income and Outlays, consumers are only saving 3.1% of their after-tax income. Even as inflation is at a 40-year high and the Federal Reserve has tried to slow borrowing and spending by raising interest rates, consumers remain seemingly unphased.
The NRF has noted that lower and middle-income households are estimated to spend slightly below historic averages, while healthier households are expected to increase spending. This indicates that those who are hurt the most by inflation are more likely to cut back on holiday spending.
The Bottom Line
Black Friday is a highly anticipated day for retailers, investors and consumers. Economists look to data from Thanksgiving weekend as an indicator of consumer confidence and economic health of the country.
Despite high inflation and rising interest rates, economists are anticipating that holiday spending will not slow this year.