American shoppers kept buying gifts even with rising prices during the 2023 holiday season. The numbers from Mastercard SpendingPulse showed retail sales were up by 3.1% from November 1 to December 24 when you look at last year. This boost included both physical stores and internet sales, and it was great news for shop owners. They’d been worried that a weak economy might mean people would spend less.
Diverse Spending Increases
People have been spending more money lately in different areas. Restaurants had a 7.8% increase, clothing sales rose by 2.4%, and even grocery stores made more sales. This is happening because there are lots of jobs and people are earning better which balances out the higher interest rates the Federal Reserve is using to keep prices from going up too much.
- Restaurants: 7.8% increase
- Apparel: 2.4% increase
- Groceries: Notable gains
“This holiday season, we’re noticing trends that line up with our view of the economy – it’s still growing,” said Michelle Meyer, the head economist at Mastercard. A robust job market has given shoppers more power, as their earnings have been going up quicker than consumer prices for the past couple of years.
Contrasting Spending Patterns
Despite these positive signs, certain sectors like electronics and jewelry witnessed a decline in sales. Moreover, the overall growth rate has moderated from previous years. In 2022, holiday season retail sales rose by 5.4%, and in 2021, there was a 12.7% increase, marking the largest percentage increase in at least two decades.
This year’s spending patterns reflect a more cautious consumer behavior. Retail giants like Walmart and Target observed shoppers waiting for sales before making purchases. Jessica Ramírez, a retail research analyst, pointed out that customers, particularly in lower and middle-income brackets, have become more mindful of their spending in the latter half of the year.
Discounts and Promotions
Many retailers reverted to pre-pandemic trends of offering promotions and discounts, ranging from 30 to 50 percent. However, this year’s discounts were more targeted, with companies less burdened by inventory glutes. Categories like electronics and home furnishings, which thrived during the pandemic, saw significant discounts.
Shoppers like Alexan Weir from Orlando found value in discounts for toys and gifts. “As a parent, you’re just trying to make your kids happy. You’re not trying to break the bank,” she expressed. Conversely, online retailers like Modi Toys faced challenges, with sales dropping significantly during Diwali, leading to heavy discounts to boost sales.
Online Retailers’ Performance
Online retailers like ThriftBooks experienced a significant boost, with sales up more than 20% in November and 24% in December. Ken Goldstein, CEO of ThriftBooks, attributed this growth to consumers seeking value amidst inflation. “This is beyond belief in terms of the volume that we’re doing,” he said.
Before the economic realities set in more deeply. “I am worried about January,” she added, highlighting the potential impact of ongoing financial pressures on consumer behavior.
The resilience in holiday spending is significant given the broader economic context. With unemployment claims remaining low and ongoing challenges in hiring enough workers, the job market has continued to support consumer spending. However, the growth in sales was slightly lower than Mastercard SpendingPulse’s initial projection of a 3.7% increase. This discrepancy suggests that while the economy remains robust, there are underlying currents of caution among consumers.
Varied Sales Performance
The sales performance varied across different categories. Clothing sales rose by 2.4%, while jewelry sales dropped by 2% and electronics saw a slight decline of around 0.4%. Online sales showed a stronger performance, jumping 6.3% from the previous year, with in-person spending rising a modest 2.2%.
Consumer Spending as Economic Barometer
Consumer spending, which accounts for nearly 70% of U.S. economic activity, is a critical indicator of the economy’s health. Economists and analysts closely monitor this data, especially during the holiday season, to gauge consumer sentiment and financial well-being. This year’s spending patterns reflect a complex mix of resilience and caution, influenced by factors like higher prices for daily necessities, reduced savings, and increasing credit card delinquencies.
As the year concludes, the focus shifts to how consumers will adjust their spending post-holidays. Industry experts are keenly watching for potential pullbacks in spending due to factors like resumed student loan payments. Nikki Baird, a retail technology expert, voiced concerns about January, anticipating a possible “last hurrah” in spending. Learn more here.