As the holiday season approaches, American consumers are gearing up to indulge in festive shopping with a notable willingness to loosen their purse strings. According to the latest findings from the Mastercard SpendingPulse survey, spanning the holiday shopping season from November 1 to December 24, non-automotive retail sales in the United States are projected to ascend by 3.7% compared to the previous year.
This uptick underscores a trend of holiday spending returning to levels akin to those witnessed prior to the pandemic. Last year, holiday sales experienced a robust surge of 7.6%, while in 2019, the rise was recorded at 3.4%.
Chief Economist of the Mastercard Economics Institute US, Michelle Meyer, noted, “It’s a bit of a return to a more normal environment because we have a more normal inflation environment.” She observed that while the economic landscape isn’t entirely back to its pre-pandemic state, inflation is now more contained compared to the same period last year.
Consumers, however, are contending with a range of challenges, including elevated interest rates, escalating gas prices, and the burden of student loan repayments.
Gasoline costs are proving to be a substantial factor affecting consumer wallets. Monday’s national average for gasoline in the US reached $3.88 per gallon, as reported by AAA. Although this marks a 2023 high, it falls below the levels observed in 2022 when gas prices surpassed $4 per gallon.
Meyer cautioned, “We have to keep a close eye on prices at the pump.” She emphasized that while gas prices aren’t yet a major concern, they wield a direct influence on how Americans gauge their spending capacity and their perception of the overall economy.
Additionally, Meyer is closely monitoring factors such as household debt service and student loan payments. She anticipates that the reactivation of student loans will necessitate an adjustment in the economic landscape, albeit not a sudden or abrupt one.
Regarding the impact of higher interest rates, the report indicates that households’ financial positions are marginally less favorable compared to those of holiday shoppers in the previous year.
Several retailers, including Macy’s (M), recently issued warnings about consumers encountering difficulties in settling their credit card balances. Nonetheless, Meyer underscored that in terms of the debt service ratio—a measure of debt payments relative to disposable income—US consumers have essentially returned to 2019 levels.
E-commerce sales are poised to surge by 6.7% in comparison to the preceding year, while in-store sales are projected to rise by 2.9%. Meyer noted that this breakdown closely mirrors that of the previous year, suggesting a persistent preference for e-commerce.
Sales of electronics are forecasted to experience a notable boost of 6%, likely driven by a desire to upgrade the technology used for home offices, a trend stemming from the pandemic years of 2020 and 2021.
Consumers are also demonstrating a willingness to dine out during this holiday season, with restaurant sales expected to grow by 5.4%, surpassing the anticipated 3.9% growth in grocery sales.
This trend unfolds against the backdrop of a challenging choice for Americans, who must weigh the rising costs of dining in versus dining out. In August, the cost of groceries saw a 3% year-over-year increase, while restaurant prices surged by 6.5%.
As witnessed this year with the economic upswing fueled by tours from renowned artists Taylor Swift and Beyoncé, Americans appear inclined to invest in experiences this holiday season.
Meyer expressed, “Consumers have power. They have choice. They’re being very clear on how and when and what they want to spend on.” The sentiment prevailing among consumers signals a robust holiday season ahead, characterized by an appetite for both material indulgence and experiential enjoyment.
Source: Yahoo Finance