Holiday retail sales soared this year despite Americans facing higher prices in some areas and other financial worries, according to a Tuesday report from Mastercard SpendingPulse, which tracks all in-store and online retail sales.
Holiday sales experienced a 3.1 percent uptick between November and Christmas Eve, marking a slower growth rate compared to the prior year's 7.6 percent surge. It is slightly below the 3.7 percent growth forecasted by Mastercard SpendingPulse in September.
"This holiday season, the consumer showed up, spending in a deliberate manner"
Michelle Meyer, chief economist at Mastercard Economics Institute.
There was a 7.8 percent surge in restaurant spending compared to the previous year. Clothing sales recorded a 2.4 percent rise, contrasting with a two percent decline in jewelry sales and a slight 0.4 percent decrease in electronics sales. The data do not include the automotive industry and are not adjusted for inflation.
Online sales witnessed a notable increase of 6.3 percent from the prior year, while in-person spending showed a modest rise of 2.2 percent.
"The economic backdrop remains favorable with healthy job creation and easing inflation pressures, empowering consumers to seek the goods and experiences they value most," said Michelle Meyer, chief economist at Mastercard Economics Institute.
Goldman Sachs suggests strong consumer spending positively impacts the economy's current and future state. As consumer spending constitutes almost 70 percent of U.S. economic activity, economists diligently track American spending patterns, especially during the holiday season, as an indicator of their financial sentiments.
"We continue to see consumer spending as a source of strength in the economy and forecast above-consensus real spending growth of 2.7 percent in 2023 and 2.0 percent in 2024 in Q4/Q4 terms," Goldman Sachs economists wrote in a mid-December report.
Financial anxiety among Americans
Before the holidays, there had been worries regarding Americans' willingness to spend due to increased prices for essential goods, declining savings and a slight uptick in credit card delinquencies.
The latest Federal Reserve inflation report, issued on Friday, indicates a slight 0.1 percent easing in prices overall. However, costs remain elevated, notably in sectors like restaurants, auto shops and rent.
This is in line with an October survey conducted by The Associated Press-NORC Center for Public Affairs Research. Around two-thirds of Americans report a rise in household expenses over the past year, while only around one-quarter mention an increase in income during the same period. Increased holiday spending for numerous consumers could also bring more debt.
In response to this issue, retailers offered 30 to 50 percent discounts on holiday goods in October, earlier than the previous year. They also adopted a more cautious strategy when determining inventory levels to avoid the issue of excessively stocked warehouses experienced last year.
The National Retail Federation forecasted a 3-4 percent increase in U.S. holiday sales, slightly lower than the 5.4 percent growth seen last year. However, this aligns more closely with the usual holiday spending trend, which showed a 3.6 percent rise between 2010 and 2019 before the pandemic disrupted these figures.
Industry analysts will dissect the fourth-quarter financial results of major retailers on their release in February. They will also monitor whether shoppers will significantly reduce spending after receiving their bills in January. PNC analysts forecast consumer spending to dip in the second half of 2024 as "the U.S. economy enters into a mild recession."
Inflation is gradually trending towards the Fed's year-over-year target of two percent, potentially paving the path for the Fed to hit its objective of a "soft landing" and eventually rate reductions in 2024. This could lead to rate cuts across various financial products, including mortgages and credit cards.
Interest rates on loans for large purchases like cars and homes usually align with the Fed's monetary policy. When the U.S. reduces benchmark interest rates, consumer expenses follow, providing households with additional funds to allocate elsewhere.