The U.S economy has been struggling to recover through 2011 and while the minimal growth is worrying on many counts, it does have one benefit; the price of Christmas has become only marginally more expensive since last year, according to the PNC Christmas index. The PNC Christmas Price Index® ,“a whimsical economic analysis based on the gifts in the holiday classic, ‘The Twelve Days of Christmas,’” according to a press release issued by the bank, gained only 3.5 percent this year. Compared to the 9-plus percent rise between 2009 and 2010, the increase looks minimal.
The 12 gifts mentioned in the song, from the partridge in the pear tree to the 12 drummers drumming, is intended to serve as a relatively accurate allegory for the state of the larger economy, and the minimal increase seems to indicate there is some truth in it. Growth in the U.S. has been waning in 2011 as salaries stay level and new jobs are increasingly elusive.
James Dunigan, the managing executive of investments for PNC Wealth management says the index has a history of closely imitating overall economic trends stating, “Typically we see parallels between our Index and the Federal government’s.”
PNC calculates the cost of the items by inquiring at their source. To determine the going-rates of such services as 10-lords-a-leaping and nine ladies dancing, PNC looked to the Pennsylvania ballet. Both of the above costs were consistent with 2010 levels, indicating that the price of labor has been unchanged this year. Salaries have suffered through the recession and into 2011 as workers become more willing to take a job at lower pay amid the high unemployment. A recent news article in the Wall Street Journal discussed the decline in American incomes since 2000 and asserted “they aren't expected to make up the lost ground before 2021,” meaning that this element of the Christmas package can be expected to stay stable for quite some time.
Unfortunately, one area that did experience considerable inflation was birds. Considering the higher cost of commodities, which translates into more expensive feed for birds, it’s not a surprise that the cost for birds is higher in 2011. The Agricultural ETF, Teurcrium Corn Fund (CORN), which could be credited for supply some of that feed, is up around 13 percent YTD, explaining why it may be more expensive to breed birds. The price tag for seven swans-a swimming is up to $6,300, a fitting 12. 5 percent increase. Similarly, both the partridges and the turtledoves became pricier according to the National Aviary. Two turtle doves were 25 percent more this year at $125 while the partridge was 14.2 percent more expensive at $15.
Bucking the bird trend, the cost of hens was consistent while the four calling birds declined in price by 13.3 percent.
The pear tree was valued at 13.3 percent more this year, paralleling an increase in the cost of agricultural products across the board. Demand from emerging economies, where the middle class continues to expand, has put greater pressure on the supply of agricultural items and has allowed farmers to fetch premiums for their wares.
One other interesting area of the Christmas Index was the price of five golden rings. Despite the soaring price of physical gold as tracked by the SPDR Gold Fund (GLD) the cost of the rings was actually 0.8 percent lower for the year as demand for retail gold shrinks alongside weaker consumer confidence.
Overall, 2011 was still the most expensive Christmas in the 28-year history of the PNC survey, totaling $101,119.84 for the 364 gifts mentioned in the song. While PNC clearly intended the analysis to be lighthearted, the rise in the price of Christmas may sound an alarm for some investors who recognize the ramifications of some trends identified within the context of the song like the rising commodities and agricultural costs against stagnant labor fees. Not to put a damper on the cheery holiday mood but to put it in the words of Julia Coronado of BNP Paribas, "Standards of living in the U.S. will continue to decline as we deleverage and emerging markets take over as the growth engine of the global economy." Bah Humbug.
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