Holiday Spending: A Gift for the Economy

Personal consumption accounts for the largest piece of the economy, roughly 69% of U.S. gross domestic product (GDP). When it comes to consumption, a significant chunk of the country’s retail sales happen in November and December.

In this edition of our Timely Topics podcast, the St. Louis Fed’s own Kevin Kliesen dives into how our holiday shopping decisions might affect the overall economy.

Key Terms and Takeaways

Consumer confidence gauges how consumers feel about the economy’s current and future strength. But does feeling good translate into actual spending? Kliesen, a business economist and research officer, says confidence is only one thing to consider. Fundamentals such as unemployment rates and income growth are important, too.

Spending on credit is “basically spending out of future income,” Kliesen says. It may not matter at the checkout. But longer-term economic impacts can occur when consumer debt levels grow.

Brick-and-mortar or online shopping? They both flow into GDP, which is the total market value of all goods and services produced in an economy. Still, shopping online can have “second-order effects,” Kliesen says, such as on employment and sales taxes.

Additional Resources

• Timely Topics: Holiday Spending
• Economic Lowdown: Gross Domestic Product
• On the Economy: Hard Data, Soft Data and Forecasting