Unwrapping Christmas: The Economics of the Holidays Season

The holiday season, particularly Christmas, isn't just a time for festive decorations and warm gatherings; it's a crucial period that significantly influences economies and businesses worldwide. From the bustling streets of the UK to the shopping malls of the United States and the vibrant markets of Mexico, the economic dynamics of Christmas play a pivotal role in shaping consumer behavior, sales strategies, and overall economic trends. In this article, we will delve into the multifaceted impact of the Christmas holidays on economies and businesses, exploring sales trends, online shopping shifts, and the ripple effects on various industries.

The economic significance of Christmas extends beyond consumer spending to present potential investment opportunities. In the UK, where Christmas sales are projected to reach £84.9 billion (107.8 billion USD) in 2023, savvy investors may consider the burgeoning online shopping trend, with a 38.2% expected share of total Christmas sales. This shift towards e-commerce aligns with the global surge witnessed in the U.S, where online sales reached an impressive $201 billion during the 2020 holiday season.

(EU; GlobalData;Statista, 2023)

Christmas brings about a seasonal rhythm for industries like toys, where sales peak during the holiday period. The toy industry's heavy reliance on Christmas sales is a testament to the economic impact of the season. Christmas markets not only contribute significantly to the winter economy but also create temporary jobs and attract visitors, fostering a boon for local businesses. Industries that experience seasonal peaks during Christmas, such as the toy industry, present unique investment prospects. Recognizing the substantial reliance on Christmas sales in this sector opens avenues for strategic investments. 

The economic landscape during Christmas is not without its challenges, with the specter of inflation casting a shadow over festivities. The cost-of-living crisis in the UK has prompted consumers to scrutinize their spending habits, with discounters like Aldi and Lidl becoming the preferred choice for budget-conscious shoppers. This shift in behavior underscores the economic sensitivity of the season to external factors.

In the United States, the Christmas season is a make-or-break period for retail stores and e-commerce vendors. A potential boycott on holiday gifts could have a significant negative impact, with estimates suggesting a half-trillion-dollar unspent outcome. Beyond sales figures, the holiday season provides valuable insights into broader consumer habits, influencing sectors ranging from savings to entertainment expenses.

Despite the economic vitality associated with Christmas, orthodox microeconomic theory poses a unique challenge. The concept of deadweight loss, calculated as the disparity between gift giver expenditure and receiver valuation, challenges the economic efficiency of gift-giving during the holiday season. This analysis prompts reflection on the possible flaws in existing microeconomic frameworks.

The financial implications of Christmas go beyond mere indulgence, as the average American family allocates $764 for holiday shopping and an additional $246 for gifts, totaling up to $1200 annually for families with two children under 13. This spending, encompassing purchases of toys, groceries, decorations, and various items, not only drives economic activity but also creates opportunities for retailers and job growth. 

Across income brackets, the economic impact of the holidays varies, with individuals of lower incomes experiencing stress during holiday shopping and resorting to more affordable options found in dollar stores and swap meets. Despite financial constraints, lower-income individuals actively engage in holiday festivities, employing creativity and cost-effective approaches such as crafting homemade decorations and baked goods. In 2014, Vox did an interesting study that displayed the important relation between employment statistics in the US and seasonal change, with massive hiring influxes and layoffs occurring in cycles before and after Christmas.

(Chart of employment growth in the United States during the early 2010s, Vox 2014)

According to Vox’s earlier analysis, and assuming this trend has continued, 2 to 3 million Americans lose their jobs per seasonal cycle (in January). The Bureau of Labor Statistics employs algorithmic adjustments to downplay this annual dip, creating the illusion of an employment boom in the seasonally adjusted statistics. This cyclical pattern, often overlooked, underscores the unique economic dynamics tied to the Christmas season. Investors can explore industries related to holiday production, retail, and services, considering the cyclical nature of employment. Identifying companies adaptable to these seasonal patterns may present opportunities for strategic investments.
Beyond the UK and the U.S., the Christmas economic dance extends to countries like Mexico, where events like El Buen Fin aim to stimulate consumption and boost the economy. El Buen Fin is an annual shopping event in Mexico that takes place in November. It was introduced by Mexico’s Secretariat of Economy to support the economy, activate the internal market, and strengthen formal businesses while guaranteeing consumer rights. The event is expected to increase sales by 5% this year. 

The program aims to reinforce domestic market activity, promote formal trade, and buttress household economies. Businesses like Farmacias Guadalajara and Toys R Us have joined the initiative, offering special promotions and discounts during the event. This annual shopping event, inspired by Black Friday, underscores the global nature of the economic impact of Christmas.

As we ring in the holiday season, it's clear that Christmas isn't just a time for joy and celebration; it's a key driver of economic activity around the world. From influencing consumer spending patterns to shaping industries' seasonal peaks, the impact of Christmas on economies and businesses is profound and far-reaching. As we reflect on the economic dynamics of the season, one thing is certain – the festive spirit carries a weighty economic presence that reverberates across industries and borders.

References:
Vox. ( Dec 24, 2014). Christmas is the greatest economic stimulus. https://www.vox.com/2014/12/24/7433715/christmas-economic-miracle
Finder. (Nov 6, 2023). Christmas shopping statistics. In 2022, Brits are projected... (provide the specific date of access).         https://www.finder.com/uk/christmas-shopping-statistics#:~:text=Quick%20overview%201%20In%202022%2C%20Brits%20are%20projected,%E2%80%93%20this%20totals%2040.6%20million%20Brits.%20More%20items
KPMG. (January, 2023). Christmas trading review and retail outlook for 2023. https://kpmg.com/uk/en/home/insights/2023/01/christmas-trading-review.html
MWTSourcing. (Dec 21, 2021.). How much does Christmas affect the economy? https://www.mwtsourcing.com/post/how-much-does-christmas-affect-the-economy-1 
CBS News. (Nov 28, 2016). Why holiday shopping is so important for the U.S. economy. MoneyWatch. By Larry Light. https://www.cbsnews.com/news/why-holiday-shopping-is-so-important-for-the-economy/