What's all this fuss about holiday retail sales? Why is this subject in the news nearly every day lately? Well, one reason is that there's very little else to report on since the Commerce Department and the Labor Department were shut down about three weeks ago. Even the Federal Reserve has begun to complain about the lack of information about the economy. In a recent interview Fed Vice Chairman Alan Blinder commented that the absence of December data on retail sales, housing, and employment could significantly impair the Fed's ability to assess the status of the nation's economy. If the Fed doesn't have all the data it needs, chances are that we won't get another interest rate cut when the Open Market Committee meets later this month.

The second reason holiday retail sales are important is because they provide insight into the prevailing mood of the consuming public. Consumer expenditures account for 2/3 of the nation's Gross Domestic Product. So, the ongoing growth of the nation's economy is heavily dependent upon the continued growth of consumer spending.

All the nation's retailers have now reported their same store sales results for December. Industry wide, same store sales for that period rose by only 1.7% -- the smallest increase in 10 years.

Various reasons have been postulated for this year's slowdown: There were just too many stores out there; or, maybe retailers weren't selling the goods consumers wanted to buy; or, the weather (sometimes too warm, sometimes too cold) was keeping shoppers away from the stores. I think we only need to look at some basic economic considerations to understand why shoppers were not swept up in the spirit of holiday spending.

Every time you turn around there's another company reducing the size of its workforce. In most cases these redundant people can't find another job like the one they had before or at the pay level they had before. Now, on a company-by-company basis, over the short term, these actions are beneficial to the bottom line and are a boon to the stockholders. But, everybody who gets laid off is somebody's customer -- a consumer. And, the more the purchasing power of the consuming public is diminished, the less money there will be available to be spent. What's more, anyone who hasn't been fired can't help but wonder when and where the axe is going to fall next. Moreover, those folks who are employed haven't made any headway on real purchasing power for years. In the six years since 1990, average weekly wages adjusted for inflation fell 1.6%.

So, it really shouldn't be too hard to figure out why 1995 auto sales fell considerably below automakers expectations; or why sales of new and existing homes have been dropping for the past few months; or why year-to-year percentage changes in retail sales were cut in half between June and November; or why retailers just experienced the worst Christmas shopping season in 10 years.

People can't spend money they don't have. And, if they feel uncertain about their economic future, they won't spend it even if they have it.

Byline: Lafferty (MF Merlin)