Thursday, November 21, 2013

Gift Cards are NOT a friend to GDP accounting during the Christmas shopping season. See here why.

A little known fact to keep in mind as you think about economics while shopping this holiday season: 

How Gift Cards Could Ruin the Holidays

According to the NRF (National Retail Foundation), a record 80.6% of shoppers plan to give gift cards as presents. The average shopper plan to spend about $163 on gift cards, up from $157 spent last year. 
Retailers, however, don’t book a gift card as a sales until the recipient spends it, usually in January. That means gift-givers might think they are being very generous, even as retailers report lackluster sales for November and December. 
That suggests the correct way to measure holiday sales is averaging November through January sales. (Consequently, we may not know the success of holiday shopping season until Valentine’s Day.)
If I buy you a $50 Gift Card for Chili's that amount is not counted as a sale until it is redeemed for real goods and/or services at a later time. If it is after Dec 31st then it would not be counted in 4th quarter GDP.

However, what the retailer paid for the ACTUAL card (the "plastic") and any fee you paid to buy the card would be included in current sales as a new good or service, hence current period GDP.

Otherwise trading money for a gift card in the same amount is considered a "private transfer payment".
"These payments are considered to be non-exhaustive because they do not directly absorb resources or create output. In other words, the transfer is made without any exchange of goods or services"
If you were to include in GDP that amount PLUS what it was redeemed for in goods/services you would be "double counting" production.  
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