...that gift card purchases during the Christmas season only count in retail sales when purchases are made with them. This was noted before the holiday season by the Purdue Retail Institute.

The issue for retail sales surrounding gift cards is that a very small percentage of them are redeemed during the traditional holiday selling season (Thanksgiving to Christmas). Since retailers cannot claim the sales of cards as sales made (until they are redeemed), retailers who have a large number of gift card sales have to wait until after New Year 's to reap the benefit of these sales. So as gift cards increase in popularity, retailers will be benefiting in their first quarter of the new year rather than the holiday season. So some of the expected good holiday retail sales season is actually part of a better first quarter and not the holiday quarter (usually the fourth quarter for retailers).

So I wonder whether we are seasonally adjusting the fourth quarter GDP data too much, and if this increased use of gift cards accounts for some of the inventory buildup in the data? If the inventory is being held in anticipation of January card redemptions, then at least one troubling sign in the fourth quarter GDP data isn't so troubling after all.

Categories: economics