Christmas Lights Shine for a Bright Economy

An unusual economic indicator that I track is “Outdoor Christmas Lights” (OCLs). OCLs are a coincidental economic indicator, providing information about the current state of the economy. This indicator is only relevant when the economy is getting weaker or growing stronger, and its measurement is highly subjective – more observational than measurable. Also, it is only able to be observed for a few weeks each year. 

I believe OCL purchase/usage is a unique economic behavior because it combines a variety of factors:

-         It is a purely discretionary purchase at a time of the year when discretionary money is limited due to gift buying.

-         It involves an expense of time to purchase the lights/decorations.

-         It involves an additional time investment to install the lights. However, this investment may not be as extensive due the increased use of the new projection lights.

-         It also requires an additional cost of electricity to power the lights. Another discretionary expense.

-         People tend to display OCLs for self-enjoyment and can be a reflection of their overall mood. A large number of people display OCLs as part of their annual Christmas festivities, while a significant number may be influenced by how festive they are feeling in a given year.

-         The use also creates positive economic externalities in that other people get to enjoy the OCLs. The huge displays some people employ are done mainly for the external benefits they produce. There is also a group dynamic in play within neighborhoods where everyone receives benefits from everyone else’s displays.

Therefore, this is economic behavior that requires an initial purchase, a physical investment, an ongoing economic investment done for personal/family mood enhancement, with an external benefit to both neighbors and strangers. This is a unique situation which has broader economic indications.

My Observation

I have lived in the same neighborhood for over 20 years and have observed (not measured) OCL usage over this time period. I admit it is only one extended neighborhood (five allotments), but it is in Stark County, Ohio, a much-watched “bell-weather” county in presidential elections.

During 2003-2007, OCL usage steadily increased. In 2007, the economy was booming and OCL usage peaked. After the recession hit, OCL displays plummeted for a few years. Then, like the economy,  they increased gradually from 2012 to 2016. The displays in 2016 were much more prominent than 2012, but still not up to 2007 levels.

Which brings us to 2017. What I just observed was an unprecedented level of OCL usage.  All occupied houses on my street had displays, and this is on a scarcely-traveled cul-de-sac. There was a high percentage of participation in the other four neighborhoods as well.

What It Means

The economy may be even stronger than what some of the other indicators say. This also confirms the higher consumer confidence/sentiment numbers released recently. Look for final Christmas retail sales numbers to exceed the forecasts. People are feeling good about their situation and the economy. There is economic momentum continuing into 2018.