Payroll tax cave-in Mister Cratchit!

THE argument that Scrooge was right about Christmas is probably not going to be a winner, either with conservatives or the general public, and I do not expect to see much more of it. It would be interesting if old Ebenezer replaced John Galt as a pro-inequality standard-bearer for a while, just to relieve the tedium, but I worry that when people on the internet start running with this one, it signals that we have so far passed the point of Peak Contrarianism that we are literally running out of obvious commonly held true statements to provocatively deny. "People should be generous to the poor on Christmas. Or should they???" Yes, they should.

In other news, House Republicans caved in and approved a two-month extension of the payroll-tax cut. Charles Krauthammer is right that making tax policy two months at a time is a terrible idea. But the question is what the longer-term implications of the cave-in will be. And what's interesting about Mr Krauthammer's column is that he employs language I never would have expected to see a Republican use when speaking about a tax cut.

When George McGovern campaigned on giving every household $1,000, he was laughed out of town as a shameless panderer. President Obama is doing exactly the same—a one-year tax holiday that hands back about $1,000 per middle-class family—but with a little more subtlety...This is a $121 billion annual drain on the Treasury that makes a mockery of the Democrats’ reverence for the Social Security trust fund and its inviolability.

The Republican talking point on tax cuts is supposed to be that it's the people's money, and talking about a tax cut as a "drain on the treasury" presumes that the money people earned really belongs to the government. In the debate over the payroll tax cut, this attitude has somehow come unglued, and it's hard to understand why.

Jonathan Chait's thesis is that the underlying shift is increasing Republican concern that people in the bottom half of the income distribution pay too little in taxes. This idea has been kicking around conservative think tanks and the Wall Street Journal for a few years, and reached probably its broadest popular expression in the tea-party movement's "We Are the 53%" (i.e. those who pay income taxes) response to the Occupy Wall Street movement's "We Are the 99%" slogan. Another possibility is that Republicans are so strongly driven by a partisan desire to deny legislative victories to the president that they are willing to torpedo even conservative-friendly policies.

Without some such theory, it becomes hard to explain the GOP's stances during the payrol-tax-cut debate. Republicans tried to insist that the payroll-tax-cut extension be paid for with cuts in spending, while they had never insisted that the extension of the Bush-era income-tax cuts for high earners which they won earlier this year be paid for. They insisted they would approve the tax cut only if it included approval of the Keystone XL pipeline. They now argue that the problem with the payroll tax cut extension is that it's too short, even though Democrats would have been happy to extend the cut for a year. In general, they treated the payroll-tax cut as if it were one of the opposing side's priorities, which they would be willing to approve only if they received some goodies in return.

If the cave-in on the payroll-tax cut was just a matter of botched strategy and callow, impetuous tea-party freshmen learning the ropes, then Republicans may be able to regain their footing and start dominating the Congressional agenda again next year. But if the actual problem is that the GOP is now only interested in tax cuts for the wealthy, and not for the poor, that is a political problem that will trouble them long past Christmas.

Green regulations Angry light-bulb salesmen

TODAY I find myself in the unusual position of disagreeing with something Kevin Drum wrote on the grounds that it's too harsh on industry. Our topic is the regulated shift of the lighting industry to high-efficiency bulbs. Last week the GOP managed to kill funding for enforcement of new energy-efficiency standards mandating that from January 1, consumers could buy only LEDs or a new breed of incandescent light bulbs that are far more efficient than the old-fashioned kind. As Mr Drum writes, the PR campaign for the new law has been abysmal; most Americans who know anything about these regulations remain under the impression that they ban incandescent bulbs, when in fact they do not. But the main point, as Politico reports, is that the lighting industry is up in arms about the regulatory chaos. GE, Philips, and Osram have invested huge sums of money in developing new energy-efficient incandescent bulbs on the understanding that the old ones would be barred as of January 1. Now they'll still have to compete with low-cost old-fashioned bulbs, and will have a harder time recouping their investment.

Here's the part of Mr Drum's post I found off-target:

On the other hand, I confess that the unanimous support for these standards from the lighting industry gives me pause. Industries only support laws that will improve their profitability in one way or another, so I assume that this law does exactly that. This is, obviously, not inherently good for consumers.

I spend a fair amount of time reporting on Philips, and I have not a shred of doubt that the company's anger over this move is legitimate. Philips, the last major electronics manufacturer left in Europe, is a company under severe stress from lower-cost Asian competitors. Their share price has been hammered, year after year. Their traditional business in consumer electronics will never recover the position it held in the 1980s and '90s, and is basically being managed for decline; they spun off their TV division to a Hong Kong-based company earlier this year. They have growth opportunities in their two other main divisions: health-care equipment, and lighting, where they are the world leader. Theoretically, lighting should be providing solid revenue growth because of the ongoing global conversion to LED and other advanced technologies. But in a period of severe stress for the company, where they've been counting on lighting to make good for them, it has underperformed, basically because of prolonged stagnant global demand. A lot of that is due to the construction industry, which remains in a funk. And a lot is the general uncertainty about how the new light-bulb market is going to work, with bulbs that last much longer, cost much more, and have to be marketed on the basis of how much electricity they save. Getting the price points right and balancing higher per-unit costs against the concerns of low-confidence, value-conscious consumers has been very difficult.

In this environment, the last thing you need is yet another dose of uncertainty. It's particularly infuriating to have uncertainty come along that's completely unnecessary and is wilfully created by politicians for no conceivable economic or social reason. The regulatory programme for new efficiency standards was a deal between government and industry. The GOP broke government's side of the deal. As a result, an industry in a fragile position due to the global economic tar-pit we've been stuck in for the past three years is going to take a completely unnecessary hit. I think their anger is entirely merited.

The euro crisis Is everything fixed?

AT THE European Central Bank's last meeting, Mario Draghi did not announce any plans to scale up purchases of sovereign debt and, indeed, he indicated that previous statements interpreted as a promise to do so were in fact no such thing. He did, on the other hand, announce new measures to boost liquidity across euro-zone banking systems, including a facility through which banks can borrow unlimited amounts from the ECB, very cheaply, for up to three years. It quickly dawned on observers that banks might just use this borrowing to fund purchases of government debt, thereby addressing the crunch in sovereign debt markets. And I see that some writers are now arguing that this step actually amounts to the critical turning point in the crisis. Is it?

The wheeze, however, seems to have been too clever by half. Hours after Mr Sarkozy was urging banks to bail out governments, the European Banking Authority (EBA) released the results of its updated stress tests showing that European banks need to raise €115 billion ($149 billion) in extra capital, mainly to offset a fall in the value of their existing holdings of government bonds issued by troubled peripheral European countries.
The banks with the biggest capital shortfalls are those from Spain, Greece and Italy. Several may have to tap government bail-out funds to raise the capital, creating the circular prospect of governments bailing out their banks that are in turn supposed to bail out the government. Italian banks, for instance, will need €15 billion in additional capital; among them is UniCredit, Italy’s biggest bank by assets, which holds some €40 billion in Italian government debt and needs to raise almost €8 billion in capital. Spanish banks need €26 billion. Europe’s core has not been spared either. Banks in Germany, the euro area’s biggest creditor country, need additional capital and Commerzbank, Germany’s second-largest bank, may also find itself asking for government help to fill a €5.3 billion hole in its balance-sheet.

Banks around the periphery are in a difficult situation. If the sovereign fails, they fail and vice-versa. Given this, there might be some logic to a move to go all-in on the sovereign's debt: hope that funneling ECB loans into sovereign debt will take some pressure off the government, and that over time confidence will return and everyone's bets will turn out all right. On the other hand, markets and regulators are pushing against such a move, demanding that such banks raise capital and reduce exposure to risky debt. How much room do troubled governments actually have to force banks into such purchases? Outside of the periphery, the incentives are clear: cut exposure to the south. Banks there will do their best to raise capital, and will take advantage of cheap financing to roll over existing debts. Meanwhile, none of these banks are in a position to scale up lending to private businesses. The impact of the credit crunch on the real economy will make it very difficult to escape the current, nasty equilibrium.

Why, then, are short-term yields falling? Well, one short-term liquidity freeze-up has been averted, and maybe something good will happen before more bad news strikes. There are surely some banks using some of the liquidity to buy government debt, for any number of possible reasons. It will be easy to overinterpret moves between now and January, however. Volume is likely to be low, as activity winds down for the holidays. And importantly, falling short-term yields are not translating into big declines in long-term yields, a big upward swing in equities (for banks or anyone else), or a recovery for the euro. Unfortunately, it does not appear that the euro-zone crisis has been brought to an end.

Beefed-up burgernomics

THE Big Mac index celebrates its 25th birthday this year. Invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level, it was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible. Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of at least 20 academic studies. American politicians have even cited the index in their demands for a big appreciation of the Chinese yuan. With so many people taking the hamburger standard so seriously, it may be time to beef it up.

See more country data and currency rankings in our new improved Big Mac index

Burgernomics is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries. The average price of a Big Mac in America is $4.07; in China it is only $2.27 at market exchange rates, 44% cheaper. In other words, the raw Big Mac index suggests that the yuan is undervalued by 44% against the dollar. In contrast, the currencies of Switzerland and Norway appear to be overvalued by around 100%. The euro (based on a weighted average of prices in member countries) is overvalued by 21% against the dollar; sterling is slightly undervalued; the Japanese yen seems to be spot-on. For the first time, we have included India in our survey. McDonald’s does not sell Big Macs there, so we have taken the price of a Maharaja Mac, made with chicken instead of beef. Meat accounts for less than 10% of a burger’s total cost, so this is unlikely to distort results hugely. It indicates that the rupee is 53% undervalued.

Ketchup growth

Some find burgernomics hard to swallow. Burgers cannot easily be traded across borders, and prices are distorted by big differences in the cost of non-traded local inputs such as rent and workers’ wages. The Big Mac index suggests that most emerging-market currencies are significantly undervalued, for instance (Brazil and Argentina are the big exceptions). But you would expect average prices to be cheaper in poor countries than in rich ones because labour costs are lower. This is the basis of the so-called “Balassa-Samuelson effect”. Rich countries have much higher productivity and hence higher wages in the traded-goods sector than poor countries do. Because firms compete for workers, this also pushes up wages in non-tradable goods and services, where rich countries’ productivity advantage is smaller. So average prices are cheaper in poor countries. The top chart shows a strong positive relationship between the dollar price of a Big Mac and GDP per person.

China’s average income is only one-tenth of that in America so economic theory would suggest that its exchange rate should be below its long-run PPP (ie, the rate that would leave a burger costing the same in the two countries). PPP signals where exchange rates should be heading in the long run, as China gets richer, but it says little about today’s equilibrium rate. However, the relationship between prices and GDP per person can perhaps be used to estimate the current fair value of a currency. The top chart shows the “line of best fit” between Big Mac prices and GDP per person for 48 countries. The difference between the price predicted by the red line for each country, given its income per head, and its actual price offers a better guide to currency under- and overvaluation than the PPP-based “raw” index.

This alternative recipe, with its adjustment for GDP per person, indicates that the Brazilian real is still badly overcooked, at more than 100% too dear (see lower chart). The euro is 36% overvalued against the dollar, and our beefed-up index also throws useful light on the uncompetitiveness of some economies within the euro area. Comparing burger prices in member countries, the adjusted Big Mac index shows that the “exchange rates” of Italy, Spain, Greece and Portugal are all significantly overvalued relative to that of Germany. As for China, the yuan is close to its fair value against the greenback on the adjusted measure, although both are undervalued against many other currencies.

Super-size jubilee

In trade-weighted terms our calculations suggest that the yuan is a modest 7% undervalued, hardly grounds for a trade war. That is less than previous estimates of a 20-25% undervaluation, based on models that calculate the appreciation in the yuan needed to reduce China’s current-account surplus to a manageable level of, say, 3% of GDP. Even this surplus-based method now points to a smaller yuan undervaluation than it used to because China’s surplus has shrunk. Several private-sector economists forecast that it could drop below 4% of GDP this year, down from nearly 11% in 2007. As its productivity rises over time China must continue to allow its real exchange rate to rise (either through currency appreciation or through inflation), but our new burger barometer suggests that the yuan is not hugely undervalued today.

A quarter of a century after its first grilling, burgernomics is still far from perfect, but if adjusted for GDP per person it becomes tastier. All the more reason to keep putting our money where our mouth is.

Business this week

Standard & Poor’s put 15 of the euro zone’s 17 members on negative credit watch (Cyprus is already on the list and Greece is at risk of a default). Along with Italy and Spain, S&P threatened to downgrade its ratings for AAA countries such as France and even Germany, and gave warning that it might also cut the credit rating of the European Financial Stability Facility. Its decision caused outrage in Brussels, with some politicians accusing S&P of retaliating against European proposals to curtail the influence of ratings agencies. S&P cited the increased systemic risk of a failure of the euro zone. See article
The unemployed count
America’s unemployment rate fell sharply to 8.6% in November, the lowest it has been since March 2009. Much of the decline is due to more people simply giving up looking for work and leaving the labour market, but revised data also showed that job growth was stronger throughout the autumn than had previously been thought. See article

A study prepared for an American natural-gas trade body by IHS Global Insight forecast that shale gas will account for 60% of all natural-gas production in America by 2035 and support 1.6m jobs. The study projected that capital spending in American shale gas would amount to $1.9 trillion between 2010 and 2035.
MidAmerican Energy, a holding company controlled by Warren Buffett’s Berkshire Hathaway, said it was buying the Topaz Solar Farm in southern California, which will be one of the largest photovoltaic power plants in the world when it is completed. MidAmerican’s boss, Greg Abel, said Topaz shows that solar energy is commercially viable. But following the Solyndra scandal, which cost taxpayers a fortune, spats over green subsidies show no sign of cooling.
BP accused Halliburton, one of its main contractors in the stricken Deepwater Horizon project, of destroying test results from the cement that Halliburton used on the rig before it exploded. A court in New Orleans is to hear claims for damages related to the resulting oil-spill disaster in the Gulf of Mexico. Halliburton said that BP had chosen to “mischaracterise” the tests, which have “little or no relevance to the case”.

Brazil’s economy was all but flat in the third quarter compared with the previous three months (but grew by 2.1% compared with the same quarter in 2010). The global slowdown has hurt capital spending and the industrial sector in Brazil, but most analysts were surprised by the quarter’s plunge in consumer spending, which accounts for 60% of the economy.
A panel investigating an accounting scandal at Olympus produced a damning report on the Japanese company’s management, which it described as “rotten”. Headed by a former judge on Japan’s Supreme Court, the panel detailed the scheme that executives allegedly used to hide investment losses by parking them in offshore funds. Olympus, which commissioned the report, is being investigated in Japan, America and Britain. The entire board is expected to step down soon.
Two big online gaming firms set the price range for their respective initial public offerings later this month. Nexon, which attracts 77m players a month, hopes to raise $1.2 billion on the Tokyo Stock Exchange in what will be Japan’s biggest IPO of the year. Zynga, which boasts 260m gamers, hopes to raise a similar amount as it floats 14.3% of the company, giving it a market value of around $7 billion. Both are expected to be heavily oversubscribed.
App, app and away!
Google marked the download of the 10-billionth app from its Android store; it sold the 9-billionth just a month ago. It is catching up fast with Apple, which reached 15 billion app downloads in July.
Research In Motion said it was writing down its inventory of BlackBerry PlayBooks by $485m because of the steep price discounts being offered by retailers for the tablet. It is another blow for the maker of the BlackBerry, which is struggling in the market for smart devices. The PlayBook hit the stores at $500 but can now be bought for $200. RIM’s share price has fallen by 70% so far this year.
A closed shop
India’s government backtracked on its recent decision to open up the country’s retail industry to foreign supermarkets in the face of protests whipped up by politicians. Indian shoppers would have benefited from lower prices and investors had celebrated the proposed reforms. But middlemen, who would have suffered, objected. See article
In China competition regulators approved Nestlé’s acquisition of Hsu Fu Chi, which makes sweets and biscuits, in one of the biggest foreign takeovers of a Chinese firm.

Shades of grey It was right to let China in. Now the world’s biggest trader needs to grow up

CHINA’S efforts to join the World Trade Organisation (WTO) dragged on for 15 years, long enough to “turn black hair white”, as Zhu Rongji, China’s former prime minister, put it. (His own hair remained Politburo-black throughout.) Even after membership was granted, ten years ago this week, Mr Zhu expected many “headaches”, including the loss of customs duties and the distress of farmers exposed to foreign competition.

Yet the bet paid off for China. It has blossomed into the world’s greatest exporter and second-biggest importer. The marriage of foreign know-how, Chinese labour and the open, global market has succeeded beyond anyone’s predictions.

It is instead China’s trading partners who now contemplate its WTO membership with furrowed brows (see article). They have a variety of complaints: that China exports too much, swamping their markets with cheap manufactured goods, subsidised by an undervalued currency; that it hoards essential inputs, such as rare earths, for its own firms; and that it still skews its own market against foreign companies, in some cases by being slow to implement WTO rules (notably on piracy), in others by suddenly imposing unwritten rules that are unfavourable or unknowable to foreigners. The meddling state lets multinationals in, only to squeeze them dry of their valuable technologies and then push them out.

Much of this criticism is right. China made heroic reforms in the years around its WTO entry. That raised expectations that it has conspicuously failed to meet. It signed up for multilateral rules, but neglected the rule of law at home. Free trade did not bring wider freedoms, and even the trade was not exactly free. It is in China’s interest to liberalise its exchange rate further, to prevent local officials from discriminating against foreigners and above all to do far more to support the global trading system. The WTO is undermined when any member flouts the rules, never mind one as big as China.

Too big to be a bystander—or to be kept out

But China’s sins should be put into perspective. In terms of global trade consumers everywhere have gained from cheap Chinese goods. Chinese growth has created a huge market for other countries’ exports. And China’s remaining barriers are often exaggerated. It is more open to imports than Japan was at the same stage of development, more open to foreign direct investment than South Korea was until the 1990s. Its tariffs are capped at 10% on average; Brazil’s at over 30%. And in China, unlike India, you can shop at Walmart, most of the time.

As for the hurdles foreign firms face in China, they are disgraceful—but sadly no worse than in other developing countries. The grumbles are louder in China chiefly because the stakes are higher. Foreigners may have won a smaller slice of China’s market than they had hoped, but China is a bigger pie than anyone dared to expect. Had China been kept out of the WTO, there would have been less growth for everybody. And the WTO still provides the best means to discipline and cajole. Rather than delivering congressional ultimatums, America and others could make more use of the WTO’s rules to curb China’s worst infractions.

So celebrate China’s ten years in the WTO: we are all richer because of it. But, when it comes to trade, China’s rulers now badly need to grow up. Their cheating is harming their own consumers and stoking up protectionism abroad. That could prove to be economic self-harm on an epic scale.

A battalion of troubles The government struggles with a dismal economy, a scuppered fiscal plan and an irate public sector

FEW chancellors of the exchequer have ever reported such bleak news to the country. On November 29th George Osborne used his autumn statement to confirm that a foundering economy had thwarted the government’s central mission: to eliminate (just about) Britain’s structural fiscal deficit by 2014-15, the eve of the next election. The author of austerity admitted that spending cuts would continue into the next parliament.

The Office for Budget Responsibility (OBR), set up by Mr Osborne to provide independent economic projections, laid out the grim numbers. Growth in 2011 would be 0.9%, not the 2.3% forecast in the June 2010 budget that committed the Conservative-Liberal Democrat coalition to radical fiscal consolidation. The economy will grow by just 0.7% next year, and by 2.1% the year after. Even these figures look too sanguine. And while slow growth is thinning tax receipts, more money than expected will go on out-of-work benefits as unemployment peaks at 8.7% at the end of 2012, not the 8.3% predicted earlier.

The consequences for Mr Osborne’s fiscal plans are profound. The deficit will still be £79 billion ($124 billion), equivalent to 4.5% of GDP, in the final year of this parliament (see chart). The national debt will peak that year at 78% of GDP. By the following year it will be £112 billion bigger than was forecast in March. Britain will run a structural deficit until 2016-17.

Such awful news would normally do for a government. Ed Balls, Mr Osborne’s opposite number on the Labour benches, certainly claims vindication. He predicted that rapid spending cuts would choke off the economic recovery that was under way when the chancellor took office in 2010. But the coalition has not yet lost the confidence of voters.

Events in Europe have given the government two lines of defence. First, Mr Osborne, backed by the OBR, says it is natural for confidence in Britain to be lacking while the euro zone struggles for survival. Labour accuse him of using the euro crisis as an excuse for poor growth but many voters seem to think it is a good one. Second, the chancellor has been able to argue that only by tackling its deficit early did Britain avoid the crushing interest rates being paid by the likes of Italy. A Populus poll released a week before the autumn statement showed that voters trust the government over Labour to run the economy by 40% to 26%. An ICM poll that came out at the same time revealed that they tend to blame slow growth on factors beyond Mr Osborne’s control such as the previous government’s debts, stingy bank-lending and the euro crisis.

The real political hazard for Mr Osborne is not a sudden loss of faith in his fiscal strategy, either on the part of markets or voters—though there is some risk of both. Instead, it is the gradual erosion of support for his party as living standards decline. Public-sector workers (a constituency the Conservatives courted in opposition as part of their mission to broaden the party’s appeal) are in danger of being lost to the Tories for the foreseeable future. Last year Mr Osborne froze the pay of all but the lowest-paid public staff for two years. In his autumn statement, he said this would be followed by a 1% cap on their pay rises for the two subsequent years. Even if inflation falls to its 2% target, this will mean a real cut in pay. He is also flirting with the idea of replacing national pay standards with regional variations, which would leave many even worse

Staggering to the rescue Europe’s troubled banks and broke governments are in a dangerous embrace

IT HAD seemed a simple enough wheeze. Give banks unlimited access to 3-year funding from the European Central Bank and it wouldn’t take much more than a nudge and a wink for them to buy the bonds of Europe’s troubled peripheral countries instead of having the ECB do the job itself. For those too dull to read between the lines, Nicolas Sarkozy, France’s president, spelled it out: “each state can turn to its banks, which will have liquidity at their disposal.”

The wheeze, however, seems to have been too clever by half. Hours after Mr Sarkozy was urging banks to bail out governments, the European Banking Authority (EBA) released the results of its updated stress tests showing that European banks need to raise €115 billion ($149 billion) in extra capital, mainly to offset a fall in the value of their existing holdings of government bonds issued by troubled peripheral European countries.

The banks with the biggest capital shortfalls are those from Spain, Greece and Italy. Several may have to tap government bail-out funds to raise the capital, creating the circular prospect of governments bailing out their banks that are in turn supposed to bail out the government. Italian banks, for instance, will need €15 billion in additional capital; among them is UniCredit, Italy’s biggest bank by assets, which holds some €40 billion in Italian government debt and needs to raise almost €8 billion in capital. Spanish banks need €26 billion. Europe’s core has not been spared either. Banks in Germany, the euro area’s biggest creditor country, need additional capital and Commerzbank, Germany’s second-largest bank, may also find itself asking for government help to fill a €5.3 billion hole in its balance-sheet.

A few months ago, banks in peripheral countries were only too happy to fill their vaults with bonds issued by their own governments. The feeling at the time was that the banks would live or die along with their home countries so there was little point in trying to mitigate the risks. Moreover, most peripheral banks have seen their funding costs soar. They had little choice but to buy government bonds with similarly high yields. “What else can I do,” said the boss of a big Italian bank, in relation to its large holdings of Italian government bonds.

That ardour has cooled since the end of October, when the EBA first asked banks to set aside extra capital against the possibility of losses on euro-area government bonds. Some bankers now fret that their accountants may force them regularly to “mark to market” their holdings and set aside capital if bond prices fall. That would prevent even the most troubled banks from gambling for redemption by taking big bets on bonds.

Banks from richer countries will be even less inclined to help out. “Foreign banks have been prepared to take large charges to sell ‘toxic’ foreign sovereign debt, so the idea that they would reload seems fanciful,” says Jon Peace, an analyst at Nomura. Governments hoping for a helping hand in bond markets will have to look farther afield than their own tottering banks.

Let the After-Christmas Sales Begin! December 26 Expected to Be Huge Day for Retailers

What with exchanges and shoppers eager to redeem gift cards, the day after Christmas is always a busy one for retailers. For a variety of reasons, including that December 26 falls on a Monday this year, retailers anticipate a banner day for sales.

Last year, December 26 was a Sunday—traditionally, a day for family time, and a day when blue laws in some parts of the country force stores to be closed or have limited hours. Retailers are under no such constraints this year. At the same time, most people still have the day after Christmas off from work, setting up what looks to be a monster shopping day.

The retail research firm ShopperTrak predicts that foot traffic on December 26 at brick-and-mortar stores will be up 60% compared to the day after Christmas in 2010. In a recent American Express survey, 57% of Americans said they planned on shopping on December 26, versus 43% on the day after Christmas a year ago. More than 1 in 5 of those who plan on shopping say they’ll be cashing in gift cards, while more than one-third (36%) will be buying gifts for themselves—the continuation of one of the season’s hottest consumer trends.

One reason the after-Christmas period is anticipated to be above average for sales is that, as the Associated Press reported, millions of Americans have earlier decided to delay some or all of their Christmas spending this year. Some have postponed gift exchanges because they don’t have the money at the moment—not surprising, given the state of the economy—while others just wanted to wait to take advantage of the inevitable 50% or 75% discounts widely available in the days and weeks after Christmas.

(MORE: Whoops! That Stuff You Ordered from Best Buy Weeks Ago? It’s Not Coming)

In one survey, 6% of respondents said they would wait until January sales to do the bulk of their holiday shopping. Shopping after Christmas seems to be soaring in popularity, especially online: Last year, e-retail spending increased 22% on December 26 (a Sunday in 2010) and 56% on December 27 (a Monday, when people were back at work) compared to 2009. The
International Business Times, meanwhile, cites a survey that indicates squeezed budgets—and an anticipation of post-Christmas sales—are causing “as many as three in five UK people to wait until the January sales before doing their Christmas shopping.”

Retailers always prefer shoppers to buy sooner rather than later, which is why, as a New York Times story shows, many stores were offering what amounted to after-Christmas deals of 40% and 50% off—only they were available days before Christmas. One retail executive explained why it’s so essential to unload merchandise asap:

“The inventory is worth so much less in two weeks,” said the chief executive of a retailer, who asked not to be named because he did not want to reveal his store’s strategy. “With that kind of inventory, you’ve got to get rid of it. Whatever the margin is today, it’s that much lower next week and the week after when traffic stops.”

What can shoppers expect come December 26 and beyond? Dealnews speculates that while there will be online deals, retailers really want to bring customers into brick-and-mortar stores, to exchange gifts and perhaps make an impulse purchase (or seven):

Last year, exclusive in-store deals were largely available from apparel merchants, like American Eagle, Aeropostale, New York & Company, Polo Ralph Lauren, and Banana Republic factory stores, Express, Old Navy, and GAP, the latter of which offered a staggering extra 50% off sale items in store until noon. We expect to see such discounts in-store this year, too, so be sure to look for printable coupons and in-store sale ads

(MORE: Kiss Mistletoe Goodbye? Poor Weather Blamed for Holiday Shortage)

Target certainly seems to be doing its best to woo shoppers into physical stores on December 26. Days beforehand, it announced that stores will open at 7 a.m., and that there will be sales of as much as 50% off. Sites such as Offers.com, dealnews, and dealio.com also have created special pages that list all the best after-Christmas sales.