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Tuesday’s weak Consumer Confidence report was a good reminder of why some economists are calling our economy the K-shaped economy. The Conference Board Consumer Confidence Index fell 6.8 points to 88.7 in November, below expectations of 93. Moreover, it sits at levels similar to those of early 2020, when the pandemic shuttered the economy. Similarly, the University of Michigan Consumer Sentiment survey is slightly above 70-year lows. Both surveys indicate that a large majority of consumers are struggling. Within the surveys, the outlook on current jobs and job availability is low. Inflation, tariffs, politics, and the government shutdown are also weighing on the consumer and limiting big-ticket spending plans.
A K-shaped economy describes a post-crisis recovery where different parts of the economy and society are performing at sharply diverging rates, forming the two arms of the letter “K.”:
- The upper arm (going up): Sectors, companies, assets, and people that benefit from the recovery and, in many cases, are wealthier than before the pandemic. This includes investors in technology stocks, big tech companies, the luxury sectors, high-income professionals, and asset owners.
- The lower arm (going down): Sectors, small businesses, and people that continue to decline or stagnate even as the overall economy appears to improve. Examples include: the hospitality and travel industries, many lower-priced retail outlets, low-wage service workers, small businesses, and many middle-class and lower-income households.
The graph below, showing the stark divergence between the S&P 500 and the University of Michigan consumer survey best depicts the K-shaped economy. You can make similar K-shaped plots comparing stock markets, GDP, and megacap corporate profits versus small business closures, wage growth for low-income workers, and economic activity in the manufacturing sector.
Black Friday And Holiday Estimates
Black Friday kicks off a spending frenzy as consumers worldwide buy holiday gifts. Often, holiday sales, particularly Black Friday sales, can make or break the entire year. Given the weak consumer sentiment we outlined in the opening section, we thought it might be helpful to see a few estimates of what this year’s holiday season may have in store for consumption.
- Adobe Analytics: US online sales forecasted to reach $11.7 billion, marking an 8.3% year-over-year increase from 2024’s $10.8 billion record.
- National Retail Federation (NRF): Overall holiday spending for November and December is expected to exceed $1 trillion for the first time, driven by a projected 3.7% to 4.2% growth in total retail sales, slightly down from last year’s 4.8% surge.
- Deloitte: They anticipate a more modest 3% rise in sales amid consumer caution over high prices and tariffs
- Bain & Company: Predicts an outsized 11% increase specifically for the Black Friday weekend but a more restrained 4% holiday forecast. They expect shopper turnout to hit a record 186.9 million over the five-day Thanksgiving-to-Cyber Monday stretch, up from 183.4 million in 2024. Moreover, they suspect shoppers will be enticed with deeper discounts—averaging up to 28% off on electronics, toys, and appliances.
The graph below, courtesy of Bloomberg, shows a KPMG survey estimating the percentage of spending by broad product category.
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