Cyber Monday rocks; Will it move savings and money market rates?
December 01, 2010
Cyber Monday -- the first Monday after Thanksgiving and the focal point of online holiday sales -- set a record this year with $1.028 billion in online purchases. Is this a sign that the economy is finally ready to shift up to a higher gear?
The question is important to depositors with savings accounts, money market accounts, and any other type of interest-bearing account or investment. Savings and money market rates have been plodding along at record lows, even though the economy has officially been out of recession for over a year now.
Interest rates are driven in large part by loan demand, and so far the economic recovery has been fragile enough that banks don't want to bet on it by lending, and consumers and businesses don't want to bet on it by borrowing.
In other words, more than just a nominal recovery is needed. Borrowers and lenders have both been waiting for signs that growth is strong enough to be worth investing in. The growth in online sales shows just that type of robust growth. Cyber Monday sales this year were up 16 over last year, and online sales for the holiday season so far are up 13 percent over last year at this point.
Don't pop the champagne just yet
Even though Cyber Monday sales growth is a hopeful indicator, don't pop the champagne cork -- or look for money market rates to rise -- just yet. There are reasons why those robust online holiday sales may not spread to the economy at large:
- Online sales are taking market share from traditional in-store sales. Therefore, double-digit sales growth online will probably not translate to double-digit retail sales growth overall.
- Sales do not equal profits. Retailers have done a great deal of discounting, and incurred promotional expenses such as offering free shipping, in order to attract sales volume. What this does to profitability remains to be seen.
Any way you look at it, strong Cyber Monday sales are better than the alternative. However, it probably won't be clear whether growth will lift money market rates and other interest rates until after the holiday season is over.
