New government data indicates that retail sales, instead of slumping, actually surged in November. Moreover, the surge was broadly distributed across pretty much all sectors.

What’s going on here? Shouldn’t the subprime debacle be crushing retail this season?

Apparently not. My hypothesis: the subprime mess is superimposed on an otherwise not-terrible economy. Subprime will have a very niche set of victims — subprime borrowers who are in over their heads, and financial firms that are stuck with explosively bad derivatives. Subprime homeowners are not representative of consumers as a whole, they tend to cluster in certain geographies and lower spending brackets. Financial firms will lay off employees and rein in bonuses, but the quantity of people directly affected will be finite and relatively small as long as the broader credit markets stabilize soon. The theory that the broader economy will be hit hard is based on estimates of the “ripple effect” from these two groups. So far, the ripples haven’t rocked the boat too aggressively; the broader economy hasn’t capsized. It’s quite possible that the slow-motion impact on subprime homeowners over the next couple years (abetted by the failure of long term interest rates to skyrocket) may allow the rest of the economy to bear this burden while still continuing to maintain modest overall growth.

Keep your fingers crossed, and keep the shelves stocked…

Filed under: ecommerce, online retail