Despite persistent inflation, preliminary data indicates that Americans have boosted their holiday season spending. This development brings significant relief to retailers who had spent a considerable portion of the year apprehensive about a potential economic downturn and a decrease in consumer spending.
Data from MasterCard Spending Pulse reveals that retail sales, spanning from November 1st to December 24th, have risen by 3.1 percent compared to the previous year. This information, released on Tuesday, encompasses both in-store and online retail transactions across various payment methods and is presented without adjustment for inflation.
Expenditure saw growth across several categories, notably with restaurants recording a substantial increase of 7.8 percent. Apparel sales showed a rise of 2.4 percent, and there were also positive gains in the grocery sector.
The holiday sales numbers, propelled by a robust job market and increased wages, indicate that the economy continues to show strength. While the Federal Reserve's efforts to combat high inflation by gradually raising interest rates in recent years have had a dampening effect on the economy, many economists are optimistic about the possibility of achieving a "soft landing."
“What we’re seeing during this holiday season is very consistent with how we’re thinking about the economy, which is that it’s an economy that is still very much expanding,” said Michelle Meyer, MasterCard’s chief economist.
Solid job growth is enabling individuals to increase their expenditures, and despite a significant rise in consumer prices over the past two years, wages have, on average, experienced even faster growth.
“We’re now entering the period, and we’re seeing it to some extent during the holiday season, where consumers have built up real purchasing power,” Ms. Meyer said.
Nevertheless, certain categories such as electronics and jewelry saw a decrease in spending this holiday season. Additionally, the pace of spending growth has shown signs of moderation compared to the previous couple of years. In 2022, retail sales during the holiday period increased by 5.4 percent, as reported by the National Retail Federation. This followed a substantial 12.7 percent increase in 2021, marking the largest percentage growth in at least two decades. Furthermore, online sales growth in 2023 has also decelerated, with a 6.3 percent increase compared to the 10.6 percent growth observed from 2021 to 2022, according to MasterCard.
Although the economy remains robust on the whole, Americans are exercising greater caution in their spending habits, and this prudence has influenced the shopping season.
In recent months, certain retailers had expressed worries that consumers seemed less optimistic and more apprehensive about the state of the economy. Walmart and Target, for instance, observed that shoppers appeared to be holding off on purchases, possibly waiting for sales, which marks a departure from previous years when they were more inclined to spend without such hesitation.
“The caution that they’ve taken on their spend and where they’re spending has been really noticeable in the second half of the year, where a lot of customers have been affected, especially lower-income and middle-income” people, said Jessica Ramírez, a retail research analyst at Jane Hali & Associates.
Reverting to patterns reminiscent of the period before the pandemic, numerous retailers and brands rolled out promotional offers. According to Ms. Ramírez, these promotions featured discounts ranging from 30 to 50 percent. However, it's worth noting that this year's discounts were more strategically tailored compared to the previous year, as fewer companies were burdened with excess inventory.
The product categories that experienced declining sales this year, such as electronics, home furnishings, and toys, witnessed some of the most significant discounts in the lead-up to Christmas. These items had seen a surge in demand during the pandemic.
Alexan Weir, a 30-year-old mother residing in Orlando, Florida, expressed her satisfaction with discovering discounts on toys while shopping for Christmas presents for her daughters this month. During her shopping trip at Target, she purchased the Asha doll, inspired by the main character from Disney's "Wish," an Elsa doll from "Frozen," and a Minnie Mouse kitchen set. Thanks to the discounts, the combined cost of these items amounted to approximately half of their original list prices, which totaled $200.
“As a parent you’re just trying to make your kids happy. You’re not trying to break the bank,” Ms. Weir said. “I spent a little bit more this year, but at least with the few sales that I received, I can say I was not heartbroken about how much I was spending.”
Barbie had a remarkable year, thanks to the success of a blockbuster movie, and performed exceptionally well in a year without a standout toy sensation. The popular doll and its various accessories have been in high demand at Mary Arnold Toys, a family-owned store located on Manhattan's Upper East Side. Ezra Ishayik, who has been overseeing the store for four decades, noted that the store's overall sales have remained stable.
“It looks like it is about even with last year — not better, not worse,” Mr. Ishayik said. “The economy looks good to me. It’s decent, it’s OK, people are buying. We are on the high end of the industry, so we don’t see any downtrend at all.”
A notable indication of consumers exercising greater spending caution can be observed in the performance of discount retailers. In November, Burlington, an off-price retailer, and the parent company of Marshalls and T.J. Maxx, reported a 6 percent increase in comparable store sales.
ThriftBooks, an online retailer, experienced a boost in holiday sales compared to the previous year, with an increase of over 20 percent in November and a growth of more than 24 percent this month, as stated by Ken Goldstein, the company's CEO.
“This was unprecedented,” Mr. Goldstein said. “This is beyond belief in terms of the volume that we’re doing. Because we’re a value product, I think a lot of people are putting their dollars to work.”
