December is a "magical month." It's filled with holiday events--, office parties, family gatherings, concerts, annual correspondence with friends, decorating, and festive reminiscence of years gone by.
          But for those of us focused on money, the most important event in the magical month of           December is shopping.
          Buying presents, flying cross-country to visit relatives, having special dinners and parties -- consumers spend more money in the three months before New Year's than at any other time of the year. In fact, retailers often make about half of their annual profit during this time, according to the National Retail Merchants' Association.
          Real median household income remained unchanged between 2002 and 2003 at $43,318, according to a report by the U.S. Census Bureau. Of that amount, $702 will be spent on celebration-related items. That's 2 percent of total income.
          In a survey conducted by the National Retail Federation, those polled said they expect to spend the bulk of their $702 holiday budget -- or about $407 -- on family members. Consumers will splurge $71 for friends, $41 on those such as babysitters, teachers and clergy, and $22 on co-workers.
          Holiday shoppers will also not forget themselves. The poll found consumers will spend an average of $89 on "self-gifting."
          The expected $702 spent on the holidays this year is 4.5 percent more than 2003. According to Manpower, Inc., 38 percent of wholesale/retail chains surveyed plan to increase holiday staff this season, up from 32 percent last year and the largest percentage since 2000.
          There are approximately 108 million households in the United States. Therefore by just doing the math-- $702 times 108 million-- we might naively say that the holidays contribute $75 billion in economic activity.
          However, it's not just the amount of money in the system that makes a robust economy; it how fast it's moving.
          For example, of the $20 you pay for a box of greeting cards, $18 may go to the company that produced the cards for sale. Of that $18 the printing company received, $14 may be paid to employees-- $12 will be spent on holiday cards, and the cycle speedily repeats.
          This creates a statistic known as the multiplier effect. On average, the money supply turns over about three times a year. That means that for each $1 spent on holiday items, the economic effect is actually $3. Our $75 billion just expanded to $225 billion. Applying the multiplier effect to the money supply ($1.4 trillion as of 3rd quarter), we find that the holidays move 6 percent of that currency around per year.
          Much of the buying now will be on credit. During November and December, credit card balances tend to balloon by about 4 percent of disposable income. That's not surprising, given that banks mail over 3 billion credit cards solicitations each year to American consumers.
          It's also not too surprising, then, that many people get so carried away during this festal time that they can't dig themselves out for months or even years.
          Credit cards generally require 2 percent to 3 percent of your current balance each month as a minimum payment. For a $1,000 balance, that's $25. But if you pay $25 a month at the average interest rate of 18 percent, you'll be burdened by this year's holiday purchases well into the next year.
          And you'll end up paying hundreds of dollars in interest on that $1,000.
          That's appalling news for the consumer, but excellent news for the financial markets. A portion of the interest you pay is placed back into monetary circulation by the credit granting company in the form of loans to other customers; stimulating more economic action.
          "It has been the American consumer-- the American household-- that has been the main driver behind economic growth," said Rick Kaglic of the Federal Reserve Bank of Chicago. "Consumer spending, despite the volatility, remains healthy."
          These factors influence consumer spending:
          - Low interest rates, which make big-ticket items such as cars more affordable.
          - Increasing value of household assets.
          - Competitive retail pricing. "Retailers (are) doing just about anything they can to get people to come into their stores and walk out with merchandise," Kaglic said.
          - Consumer confidence, although there has been a slight decline because of rising oil prices and slow job creation.
          Whether households continue to spend at the same level will depend on how much money workers are earning. But Kaglic sees an encouraging sign: Wage and salary growth increased 0.4 of a percentage point in August. That number seems small, said Kaglic, but it's better than economists have seen in the past.
          So as we head into this year's magical month of December, help the country prosper. Do what Kaglic says: Keep shopping!