NOT SPOOKED

The economic theory behind why Americans spend more money on Halloween during presidential election years

Obsession
2016
Obsession
2016

Halloween ignites the American economy—and this is never more true than in an election year. During the election cycle, people adjust their consumption habits based on their expectations of the future. With all this year’s noise and chaos, many consumers are expected to spend both as a distraction and as a sign of consumer confidence in the economic cycle to come.

This year, more than 171 million Americans will celebrate Halloween by spending an estimated $8.4 billion, the highest ever, according to a survey by the National Retail Federation. Consumers plan to spend $3.1 billion on costumes (which are purchased by 67% of Halloween shoppers), $2.5 billion on candy (94.3%), $2.4 billion on decorations (70%) and $390 million on greeting cards (35.4%).

This data shows that Halloween ranks pretty high on our list of national priorities. In fact, during the last election cycle, more adult Americans celebrated Halloween than voted. Data from the Pew Research Center shows that nearly 129 million Americans voted in 2012 elections, compared to 171 million who celebrated Halloween.

Social pressure and social media

When it comes to seasonal holidays, Halloween has a special place in the hearts of Americans. From a social science perspective, consumers’ excitement to spend big money on a public festivity is a curious phenomenon. That’s because such behavior goes against what is commonly known among economists as the “free rider problem.” The theory goes that consumers will spend less on certain items when they think that their neighbors will take on the weight of the expense—why splurge with your own money when you think the rest of your community will take care of it? In a non-holiday application, this kind of thinking makes it hard to efficiently provide public goods by collective contributions, such as in the context of military defense services or the maintenance of public parks.

 As spooky as this election has been, it hasn’t spooked Americans from spending. Not so with Halloween. The spooky holiday turns the free rider problem into a competition between households to out-do each other in costume choice, exterior decoration, and sweets for the kids that go from door to door to demand “trick or treat!” Instead riding on the coat tails of your community, you want to one-up them.

This type of social competition manifests itself on social media. Being top dog (… or superhero, princess, or villain) in creating the most social-media buzz with your efforts is a coveted position, and the competition to win best costume is both fierce and fun.

Now throw the US presidential election into the mix. Looking to counteract horror with humor, every election cycle brings scores of politically themed costumes as a method of blowing off steam. This year may be one of the best—from Trump and Clinton costumes to Ken Bone, whose signature red cable-knit sweater, iconic mustache, and 15-minutes of fame will be no doubt be replicated across America.

Consumer expectations and Halloween

So why do consumers spend exceptional amounts on Halloween goods during election years? One of the most citied concepts in modern economics is the “permanent income hypothesis,” which was coined by Milton Friedman. It states that individuals make consumption decisions based on present economic conditions as well as future expectations over how the economy will turn out. Take a look at the below chart, noting the US presidential-election years in 2008, 2012, and 2016.

Often, it is expectations that most affect people’s spending. For example, analysts at the Conference Board release a monthly Consumer Confidence Index, which economists view as one of the key components in measuring the health of the economy. Through this lens, increased spending just before elections could be interpreted as a sign of confidence or of hope that the upcoming political cycle will bring further improvement in economic conditions. In line with this proposition, the latest Conference Board Consumer Confidence Index increased in September, reaching a value of 104.1, up from 101.8 in August. That means that between these two months, consumers now feel more optimistic about the economy and will likely show that in their spending habits.

In the past, election years have often spurred feelings of economic uncertainty, but that has not shown in consumer spending habits this year. In fact, consumer confidence is at its highest rate since 2007. That shows that regardless of the pending Election Day, Americans haven’t felt this good about the economy in a long time.

Scaring up the pumpkin-spice industry

But the season is not solely based on costumes and candy anymore—it’s all things pumpkin-themed. In fact, pumpkin-flavored product sales across the industry totaled over $360 million in 2015, including the sales of Starbucks’ pumpkin-spice lattes, which have increased 13 times from 2014. Forbes estimates that total sales of pumpkin goods will increase to more than $500 million in 2016.

Not to be outdone, the craft-beer industry experienced chilling success with seasonal pumpkin beers that fill bars and supermarkets as early as August. In fact, IBISWorld estimates that the seasonal-beer category represents the second-largest product segment for the craft-beer production industry (19.1% of sales), trailing only IPAs (20.4% of sales) in popularity.

From all these different avenues, Halloween is a huge revenue generator, and it only grows during an election year. Halloween has proven it can scare up the sales, and that spending only boosts the economy. As spooky as this election has been, it hasn’t spooked Americans from spending. With consumer confidence on the rise, Americans hope that the outcome of this election will reinforce these positive sentiments.

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