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Yuletide logjams: Economy hits holidays

Cash Gift

By Joel Dresang

In our immediate family, we exchange names for Christmas. We used to each give presents to everyone else, but years ago when money was tight, we scaled down to one exchange apiece. We haven’t gone back.

I thought about that amid all the warnings about supply-chain kinks causing shortages and higher prices this Christmas. Repeated messages of “Buy-now-or-else!” have made me wonder how economic circumstances affect holiday traditions.

Of course, bottlenecks have consequences for investors. Econ 101 tells us inflation ignites when supply can’t keep up with demand. Consumer Reports said in September that the average price for an artificial Christmas tree could rise 26% from last year because of higher costs for shipping containers, transportation, labor and materials. The Wall Street Journal reports expected shortages include natural trees because of fewer plantings during the Great Recession.

Overall, the latest personal consumption expenditures index shows inflation at its highest point in 30 years.

“This is important for investors,” Bob Landaas said in a recent Money Talk Podcast. “It is about interest rates and earnings. And interest rates are driven oftentimes by underlying inflation rates. And I would concede that it’s difficult to forecast inflation in the circumstances that we’re experiencing now.”

Since the global pandemic disrupted the economy in 2020 and continues to stymie a disjointed recovery, economists can’t be sure what to expect. Although Bob said he anticipates inflation will settle down again in 2022, he has advocated for investors to maintain an appropriate balance in their portfolios to be ready for anything.

Even if inflation proves relatively fleeting, the current logjams threaten a Grinchian grip on Christmas present. That doesn’t worry me as a long-term investor. But as a seasonal shopper, I fret that whatever I decide to give my secret recipient won’t be available or will end up costing more than our agreed-upon dollar limit.

Traditionally, my practice is to put off gift-getting until I run out of inspiration or time — whichever comes second. This year, the same supply-chain hitches that are bewildering economists are messing with my holiday shopping routine.

Historically, economics have made a mark on holidays. For instance:

  • The Industrial Revolution helped transform Christmas to a commercial juggernaut, Smithsonian magazine notes, as mass production “led to a new surplus of goods and products that advertisers were now tasked to sell to a flush new class of consumers.”
  • The aftermath of the 1890-1891 U.S. recession inspired the Salvation Army to start setting out its iconic red kettles around the holidays to collect donations for needy families.
  • After years of citrus growers marketing them as stocking stuffers, oranges became ubiquitous St. Nick gifts beginning in the Great Depression, when many families saw them as an affordable luxury.

When our family began exchanging names, a couple of years before the Great Recession, I had suffered two pay cuts in three years, our daughters were still schoolchildren and my wife had just resumed working outside of the home.

We cut back on gifts to spare us some money and stress, but even after circumstances improved, the family agreed to continue the one-on-ones. I must say, I’ve enjoyed the opportunities to focus on an individual each year, to try to make her gifts and her experience more meaningful. As a recipient, I’ve found my presents more practical — like the skillet I got from my wife one year and the washcloths and socks a daughter gave me, and more creative — like the papier-mâché school art projects I got from a daughter one year.

One reason for expecting the current flare-up in inflation to be a flash in the pan is that supply-demand obstructions tend to work their way out in time. Businesses behind on orders have it in their interest to catch up and satisfy customers. As companies work to restore balance between supply and demand, not only do prices moderate but the economy benefits from increased production and employment.

Other Money Talk articles from Joel Dresang

Such times also lead to productivity boosts, with businesses investing in technology and processes to run more efficiently, which allows them to generate profits they can plow back into operations, pass along to employees and return to shareholders.

“As you look at what the expectations really are for inflation,” Kyle Tetting said during a recent Money Talk Podcast, “remember that a little bit of inflationary pressure is a great thing for corporate profitability as long as they can pass on those prices to their consumers, as long as they can continue to operate. A little bit’s a good thing. A lot’s when you start to worry. And the signs just aren’t there for a lot of inflation.”

Whatever obstacles the economy might impose on me this Christmas, I acknowledge that it’s healthy on occasion to reimagine how I approach things. Just as businesses use the supply constraints to scrutinize their practices, I’m reconsidering how best to fulfill my obligations as a secret Santa. Maybe this is the year I start shopping early. Maybe it will become my new routine.

Joel Dresang is vice president-communications at Landaas & Company.

Learn more
Uneven recovery suggests balance, by Kyle Tetting
Stocks offset fears of inflation over time, by Joel Dresang
Stocks: Long-term, consistent returns, a Money Talk Video with Dave Sandstrom
Talking Money: The importance of balance, a Money Talk Video
(initially posted October 29, 2021)

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