Ah Christmas, the nice and fuzzy season of family-gathering, binge-spending, where the bulk of retailers’ sales are made. This year, Santa is still gonna dress in red, but with a little less shine on his boots. This may have to do with declining purchasing power, and supply chain constraints.

For starter, U.S. consumer prices rise at a pace matching the fastest since 2008, ticking up 5.4% in Sep21. Well, the post-covid world economy is suffering from higher shipping costs, labour shortages, madly-high raw materials prices, and a dearth of key components – microchips to name only one category. These costs are being passed on to consumers, no doubt.

You might say that some of it is matched by increasing wages. They have indeed increased to lure back or retain workers, which was by the way more beneficial to lower-wagers – a good thing. Nevertheless, real earnings growth is still negative on the back of inflation and a tick up in interest rates. This is resulting in a decline in purchasing power. Have a look at what would be left in your pockets, once you pay for a 30% rise in gas cost this winter, increased rental fees, and food costs. Yes dear, not much. Would it affect the sacrosanct Christmas budget though?

The good news is there is still hope, some cunning and avid consumers might want to circumvent the supply-chain glut and shop early. According to a RetailMeNot survey of almost 1,100 consumers, 37% of shoppers began their holiday shopping between August and September. Another 22% said they would start shopping in October, while 24% planned to begin in November ahead of Thanksgiving. Nobody can stop consumerism after all. Just try not to deliver presents to your family on the occasion, if you have an appetite for trouble.

It even gets better. Americans are expected to spend about $1.3T this holiday season, per the latest forecast from Deloitte, marking a 7% to 9% increase over last year. Oh but remember, shoppers buy on impulse, and if for supply-chain reasons their products are not on the shelf, they might just forget about it altogether.

We, personally, buy the argument that this whole disruption is transitory, even though it has been going on for quite a while. Almost 2 years now, and it is likely not finished yet. The more it lasts, the more fundamental changes are at play. Re-shoring of production, investments in more modern infrastructure, and an increased shift away from physical to digital. Think of it this way, you might not need this extra piece of clothing, but you might benefit from an online tutorial on how to code in Solidity. Better prepared for the future, better for the planet.

Happy Christmas everyone. It seems the season has already started.

360 Advisory – Markets