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Federal Reserve Bank of Atlanta Michael Chriszt February 1, 2010 Moderator: Welcome to Southeastern Economic Perspectives, an occasional podcast from the Federal Reserve Bank of Atlanta. The following comments discuss holiday retail sales in the district. Michael Chriszt, an assistant vice president responsible for the Regional Economic Information Network, and Courtney Nosal, an analyst who specializes in the Sixth District, will provide insight regarding retail sales numbers and what they might mean. Thank you for joining me, Courtney and Mike. Courtney Nosal: Thanks, Jean. Mike Chriszt: Thanks, Jean. Moderator: How did regional sales compare with national results for the holiday season? Nosal: Well, by looking at our district retail survey and reports from our contacts in the Southeast, it seems as though this region had fairly similar trends as the nation, but overall things appeared to be a bit better. Both nationally and regionally, holiday sales were dramatically better than last year's sales; however, last year's sales were rather dismal. Nationally, however, sales from November to December actually dropped, and this was quite unexpected. Sales in November of 2009 were very strong, and this was thought to be the beginning of a strong holiday sales year. So this implies that consumers most likely spread out their holiday shopping throughout the year, as opposed to doing most of it in December, like in the past years. Regional sales were slightly more encouraging than national results. Retailers throughout the district reported sales either met or surpassed their expectations in December. Because expectations for holiday sales were conservative at best, retailers had prepared accordingly by choosing to keep inventories at low levels, and many expressed that this just-in-time level may be the new norm. In December, about half of our contacts reported sales were above year-ago levels, and similar responses were logged when we asked how the entire holiday sales stacked up to last year's experience. Moderator: Where there areas or stores that were more successful than others during this period? Nosal: From the information that we gathered from our retail contacts, it showed that there was a lot of strength in discount stores and outlets, while high-end and luxury stores had kind of mixed performances during the holiday season. Moderator: So can you summarize holiday retail sales for us, Courtney? Nosal: Overall the nation experienced disappointing holiday sales. November numbers looked promising, but this trend did not continue into December. But regionally, retailers appear to have experienced somewhat stronger holiday sales trends, especially in December, than the nation. Retail surveys for September, October, and December of 2009 all reported about half of the retailers in the Southeast expressed optimism for the coming months, and these are the highest levels since September of 2008, so this is an encouraging sign. Chriszt: You know, Jean, one thing about that optimism that we've picked up in our surveys: When we look at the unemployment rate and broader measures of underemployment in the region, it doesn't really mesh up with that optimism that we're seeing with regard to what the retailers are telling us. Unemployment is still very high; it actually picked up in December, which was a bit unexpected. Labor income isn't accelerating, and credit demand remains soft, and consumers are still paying down their debt. So we're trying to come to grips with these two really sort of opposing signs, if you will. And I think one way to interpret this—and we were just talking about this before we came in—is that from the retailer's perspective, yeah, the worst is definitely over. And that slow increase in sales that they expect is probably something that is pretty much baked in the cake as we see some of the unemployment rates start to stabilize as the year goes on. But at the same time, I don't think we should interpret their optimism as a return to the way things were prior to the recession. So not to throw cold water on that optimism that we've seen in the survey, but just to take a step back and be realistic, the expectations that things are improving and will continue to improve, I think, is valid, but that improvement is going to be very slow. And I think what really comes through in a point that Courtney made about inventories is really telling, because what the retailers are telling us is that their inventory levels are very low, and they intend to keep them very low. So their expectations with regard to sales, I think, are a bit muted when you take that into consideration. If they expected sales to really start to increase at a much faster clip, they would be telling us or indicating that they would be building up their inventories. We're not really seeing that. So I think overall what we're seeing in the survey, and what the holiday sales really showed us, was that the worst is over with regard to consumer spending and that the recovery is under way, but it's going to be pretty slow. Moderator: Thanks, Mike and Courtney. Chriszt: You're welcome. Nosal: Thanks, Jean. Moderator: Again, we've been listening to Atlanta Fed research team members Michael Chriszt and Courtney Nosal provide insight into holiday retail sales. This concludes our Southeastern Economic Perspectives podcast. Thanks for listening, and please return for more podcasts. If you have comments, please send us e-mail at podcast@frbatlanta.org.