Question

do you think that Black Friday and Cyber Monday sales are a good predictor about the health of the economy? How does this big event impact the economy?

Answer 1

To understand the importance of Black Friday and Cyber Monday sales, it is necessary to have an insight on the structure of the economy in the United States. While the US economy was driven by manufacturing and production in the 1960s and 1970s, the US economy is largely driven by consumption since the 1990s and particularly after the year 2000. Currently, consumption spending is nearly 70% of US GDP. Therefore, consumption spending on durable and non-durable goods is of paramount importance.

With this overview, Black Friday and Cyber Monday sales are good indicators of health of the economy. When consumer confidence is high and economic growth is robust with a healthy jobs market, consumers are likely to spend more on these occasions. On the other hand, if consumer confidence is low and economic growth is sluggish, consumers are likely to hold back on spending aggressively during these days. Low consumer confidence would imply that consumers prefer to save for uncertain economic conditions.

Any big event like the Black Friday, Cyber Monday or Christmas has a significant bump-up impact on the economy. The reason is that consumption spending grows during these events. To cater to higher demand from consumers, investment spending or production also increases during this time and prior to any big event. The result is that the economy can potentially witness 1-2 quarter of higher than normal (above the trend) GDP growth.