Christmas spending: no surprise that shoppers are holding back

Sometimes economics is a very simple subject. All sorts of explanations can be dredged up for the weakness of retail sales in November 2012 but it boils down to this: consumers are hard up and saving what money they have for a splurge before and after Christmas.

The volume of high street and online spending last month was unchanged on October, which was down 1% on September. Excluding fuel – a better guide to the underlying trend than the headline number – retail sales have been flat in the latest three months, the softest performance since the quarter ending in September 2011.

Had it not been for the launch of Apple's new mini iPad, sales would almost certainly have fallen modestly in November, and survey evidence from the CBI suggests that December did not get off to a particularly strong start either.

This, though, is only to be expected when people are struggling to make ends meet. There are only four ways in which consumers can finance higher spending: they can enjoy real growth in their earnings after inflation is taken into account; they can run down their savings; they can take out an unsecured loan or a second mortgage; or they can blow a windfall gain.

In late 2012, the picture is as follows. Real incomes are falling not rising, because prices are rising faster than wages. Households are worried about the future so are trying to save a bit more. Unsecured loans are as rare as hens' teeth and the torpor in the housing market makes equity withdrawal a no-no. That only leaves windfalls, which have provided a boost to spending power via the compensation for payment protection insurance paid out by the clearing banks.

But think about it? If you have just received a big cheque from Lloyds Banking Group or Barclays are you going to spend it immediately or stash it away for a Christmas blowout? Some consumers, no doubt, have already spent every last penny of their PPI compensation but many more will have resisted the temptation.

That is why there may yet by a last minute burst of spending that will spare retailers from a dire December. The underlying state of household budgets means, however, that it won't last.