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Are Consumers Shopped Out?

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As we come off a big Black Friday and Cyber Monday, are there still legs in the retail sector?

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While turkey, stuffing, and cranberry dressing have been American holiday traditions for generations, retailers have a tradition of their own: Black Friday.

Starting in the late 1800s, many retailers began sponsoring Thanksgiving Day parades to draw potential customers into commercial districts and provide a not-so-subtle hint that the holiday shopping season had commenced. The Macy's Thanksgiving Day Parade, which began in the 1920s, is probably the best-known example of this tactic. Since then, the Friday following Thanksgiving has become one of the year's busiest shopping days.

This year's Black Friday was no exception, even as the US economy continues to suffer from a serious post-financial crisis hangover. Americans reportedly spent an estimated $11.2 billion in brick-and-mortar stores-down 1.8% from last year-while online shopping receipts totaled just over $1 billion, the first time that level has been broken and a nearly 30% jump from last year.

Not content with just one day though, online retailers have helped fuel a new holiday tradition: Cyber Monday. Since the advent of the Internet, retailers and entrepreneurs have used it as a tool to separate consumers from more of their money. They've been pretty successful at it too, with employers reporting that their workers spend more time shopping on the Internet than actually doing their jobs. Online retail sales are expected to top $1.5 billion today, a 20% increase from a year ago.

That should amount to a holly, jolly holiday season for retailers this year. But how long can the party go on?

Although numerous economic indicators have been subject to extreme oscillations this year-everything from weekly jobless claims and the unemployment rate to auto sales and consumer confidence-retail sales have been surprisingly steady. Maybe shoppers simply decided to shake off the pall of negativity that's been hanging over them for the better part of three years. Regardless of the reason, retailers have reported surprisingly strong sales this year despite the anemic economy.

While shares of discount retailer Family Dollar Stores (NYSE:FDO) have returned 21.6% so far this year, with less volatility than Macy's (NYSE:M) stock, the latter has performed even better, with a gain of nearly 30%. And the high-end retailer actually increased its earnings guidance by a nickel per share in the third quarter.

That kind of optimism has been a rare bird lately, with most companies warning to the downside. However, the retail space has been one of the top-performing sub-sectors this year, as evidenced by SPDR S&P Retail's (NYSEARCA:XRT) nearly 20% return this year versus just under 8% for the S&P 500.

But that holiday cheer could get doused with cold water if Congress and the president fail to negotiate a resolution to the dreaded fiscal cliff. That term encompasses the looming spending cuts and tax increases slated to take effect at the outset of next year. Among its many consequences, more than two million Americans face the prospect of their unemployment benefits expiring. That's about 40% of those drawing jobless benefits today.
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No positions in stocks mentioned.
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