Stories based on Black Friday consumer spending numbers are a holiday tradition. Bob talks with investor and Bloomberg View contributor Barry Ritholtz about the problems with stories based on those numbers.
...Retailers are hoping that tomorrows online sales make up for what was an early numbers showing as a pretty weak Black Friday. ...They were down from last year? Black Friday sales were down. That's the four days around thanksgiving. thats Thursday through Sunday. Down 11 percent. Pretty dramatic stuff.
....This morning many of our nations stores are reeling after Black Friday. The National Retail Federation says Thanksgiving weekend sales dropped 11 percent.
BOB: OMG. Black Friday retail sales were down! Which foretells weak holiday sales. Which bespeaks low consumer confidence. Which is the leading edge of an economic slowdown.Which means unemployment and misery and destruction of the family. Which leads to anarchy. Unless… black Friday sales weren't down, at all. Which, says Wall Street Barry Ritholtz, is entirely possible. Because the source for all this dire Black Friday news, he says, is and has always been worthless.
RITHOLTZ: Look we go through this silliness every year, what the survey that the National Retail Federation does every year is they ask a group of shoppers 'hey - what did you spend on holiday shopping last year?' and they get some number, and then say 'Well what are you going to spend on this year?' and they get a second number and then the difference between those two numbers is how they come up with -- and by the way that's the before we get to the issue of, even if we know exactly what Black Friday sales are, there's no correlation with how the total holidays sales are.
BOB: I get your complaint that this is done by survey, self-reported by consumers who speak with some authority about a number that I could never produce satisfactorily...what I spent on Christmas last year. I have no idea. On Black Friday, even less idea. I get that the self-reporting dubious and probably doesn't extrapolate well. I am curious about what happens when the actual retail numbers are in. And how have they historically compared to the estimates that come out in the first week of December.
RITHOLTZ: So we go back and we look over the past 10 years worth of forecasts, survey estimates versus what actually happens. And we find there's absolutely zero correlation to the sales. Think back to 2009 the forecast was for a 40 percent drop in retail sales. Actually we were positive that year. Not too long ago we had a 16 percent positive forecast. Typically the retail sales are up 2-3 percent. 4 percent is a really good year. So these big swings, these big positives and negatives. Typically their reflecting whatever the sentiment of the moment is. And not how people actually spend money.
BOB: If the data that are promulgated are so suspect why would the media year after year continue to cite this source if the numbers just are destined to not hold up?
RITHOLTZ: That is the $64,000 question. It's been a peeve of mine for a while.
BOB: Hold on. A peeve of yours? Barry, it's your whale. You're Ahab, the NRF Black Friday numbers are your whale. You complain about this, usually in print year after year after year. And yet, there they are.
RITHOLTZ: The NRF called it my annual temper tantrum -- and the reason I bring this up is because it affects consumers and it affects investors. The big surprise is how surprisingly gullible the major media is. And that's true for The New York Times, The Wall Street Journal, Bloomberg, everybody just takes this survey and reports it as if it's fact. History shows us it clearly isn't fact.
BOB: It's gotta be meaningful, Barry - as you point out in your piece. It's got decibels. Some very fine parsing of the data. 50.9 billion dollar estimate for 2014. That's ... sounds pretty authoritative to me.
RITHOLTZ: That's a variation of old joke: 'Why do economists use decibels? To show they have a sense of humor.'
BOB: You intimated that this actually moves markets. Is there a correlation between the days market closing tallies and the NRF number when it emerges every year?
RITHOLTZ: The tendency for people to read data or something that looks remarkably like data and act on it is shocking. The key take-away -- and I can't emphasize this enough -- is that when you ask a human being a specific question like 'how much money have you spent, or how much money are you going to spend?' either they get out their checking ledger and their various credit card statements and they very carefully total it all up and come up with an accurate number. Or they just wholly make-up a number and you're pretty much guaranteed that that made-up number is going to be totally wrong.
BOB: Alright. Let's stipulate for the purposes of this conversation that it is absurd to make any economic decisions based on a survey that depends on the best memories of distracted shoppers. Let's stipulate that. Why is it in the NRF's interest to be trading these silly numbers year after year, especially when the numbers point downwards.
RITHOLTZ: It keeps the shopping season front and center. Right in the media's sweet spot. It gives them something to talk about. It reminds people, 'hey - it's the Holiday Season, go buy stuff' and so ... look, they're a trade group. I don't hold it against them. This is their job. I just wish they'd communicated more accurately, like other trade groups that I've looked at their math and made fun of - they are trying to push the position of their members.
BOB: Let's assume that this has no impact on any journalist anywhere this year or any subsequent year and it all happens again. What are the chances of you writing about this in 2015? Are they 11 percent lower than this year. Or are they 16 percent higher.
RITHOLTZ: I would say, if the numbers continue to come out based on a methodology that presents the opportunity to misrepresent and confuse investors and consumers it's better than even money that you'll see a column from me lamenting the sorry state of our media that seems to think it's role is to be a parrot reading to whatever is handed to them by whatever trade organization happened to get somebody's email address.
BOB: Captain Ahab, it's a pleasure.
RITHOLTZ: Thanks for having me.
BACK ANNOUNCE: Barry Ritholtz is an asset manager and frequent contributor to The Washington Post and Bloomberg View. We asked the National Retail Federation for comment. It stressed that it never presented its preliminary Black Friday or Holiday spending numbers to any member of the media as the final word on consumer spending. The organization also says it stands by its survey methodology and that it’s long been scientifically vetted.