Despite lingering inflation, Americans increased their spending this holiday season, preliminary data shows. This comes as a big relief to retailers who fear the economy will soon weaken and consumer spending will fall.
Retail sales rose 3.1 percent from Nov. 1 to Dec. 24, compared with the same period a year ago, according to data from Mastercard SpendingPulse, which measures in-store and online retail sales across all forms of payment. The numbers, released Tuesday, were not adjusted for inflation.
Spending increased across many categories, with restaurants experiencing one of the biggest jumps, up 7.8 percent. Apparel rose 2.4 percent, while grocery also gained.
Holiday sales figures, driven by a healthy labor market and wage gains, suggest the economy remains strong. The Federal Reserve's campaign to curb high inflation by raising interest rates over the past few years has slowed the economy, but many economists believe a so-called soft landing could be achieved.
“What we're seeing this holiday season is very consistent with how we think about the economy, which is that the economy is expanding even more,” said Michael Mayer, chief economist at MasterCard.
Firm job growth allows people to spend more. While consumer prices have risen a lot over the past two years, wages have grown faster overall.
“We're now entering this period, and we're seeing some of that in the holiday season, where consumers have built up real buying power,” Ms. Meyer said.
However, spending has come down this season in segments like electronics and jewellery. And the rate of growth in spending has moderated over the past two years. In 2022, retail sales are expected to increase 5.4 percent during the holiday season, according to the National Retail Federation. In 2021, they are is high 12.7 percent, the largest percentage increase in at least 20 years. Online sales growth also slowed in 2023, rising to 6.3 percent from 2021 to 2022, compared to 10.6 percent, according to MasterCard.
When the economy is strong overall, Americans are paying more attention to how they spend, and that preference has shaped the shopping season.
Some retailers have expressed concern in recent months that shoppers are lethargic and fearful about the economy. Walmart and Target appear to be waiting for a sale before shoppers buy, a shift from their free-spending in recent years.
“They're cautious about their spending and where they're spending is most noticeable in the second half of the year, where a lot of customers are affected, especially low-income and middle-income people,” Jessica Ramírez, a retail research analyst at Jane Hawley & Associates.
Instead of some of the pre-pandemic trends, many retailers and brands offered promotions. The discounts ranged from 30 to 50 percent, Ms. Ramirez said. But this year's discounts were more targeted than last year's because fewer companies were overwhelmed by the glut of inventory.
Categories that have seen sales decline this year — such as electronics, home furnishings and toys — have seen some big discounts in the run-up to Christmas. Those products enjoyed booming sales during the pandemic.
Alex Weir, a 30-year-old mother in Orlando, Fla., said she was delighted to find deals on toys when she bought her daughters Christmas presents this month. Among her purchases at Target were an Asha doll based on the main character from the Disney movie “Wish”; “Frozen” is an Elsa doll; and a Minnie Mouse kitchen set. With discounts, the total cost of the items will be half off over $200.
“As a parent you try to make your children happy. You're not trying to break the bank,” Ms. Weir said. “I spent a little more this year, but at least with some of the sales I've had, I can say I'm not broke about how much I'm spending.”
Barbie — whose banner year was fueled by the blockbuster movie — sold particularly well in a year without a breakout doll. The doll and many of her accessories sell well at Mary Arnold Toys, a family-owned store on Manhattan's Upper East Side. And the store's overall sales have been steady, said Ezra Ishaiq, who has run the store for 40 years.
“It looks like last year – not better, not worse,” said Mr. Ishaiq said. “The economy looks good to me. It's decent, it's okay, people buy. We are at the top of the industry, so we don't see any downside.
But the last few months have been more challenging for the Modi dolls.
Modi, an online retailer that sells expensive toys and books based on Hindu culture, typically sees two sales bumps in the fourth quarter — one leading up to Diwali and the other around Christmas.
The company typically brings in more than $100,000 in sales in the month leading up to Diwali, which falls on Nov. 12, but this year sales have dipped into the five-digit range. Because the retailer introduced a product so quickly that it had to offer heavy discounts to stimulate sales—retailers tend to avoid new products.
“That's when we knew we were going to have a challenging holiday season,” says company founder Avani Modi Sarkar.
As she closes out the year and looks ahead to 2024, Ms. Sarkar is testing new digital marketing strategies, including sending personalized email newsletters to customers and keeping a close eye on discounts.
“We're trying to close the gap on ourselves and not finish the year with as big a gap as we have,” he said. “I know what we're capable of and I'm trying not only to get back to that level, but to surpass it.”
One clear sign that shoppers are being careful about how much they spend comes from discount retailers. In November, off-price retailer Burlington and Marshalls and the parent company of TJ Maxx said comparable store sales rose 6 percent.
Online retailer ThriftBooks said its sales this holiday season were up more than 20 percent in November and up 24 percent this month from a year ago, according to the company's chief executive, Ken Goldstein.
“This is unprecedented,” Mr. Goldstein said. “It's beyond belief in terms of the volume we're doing. I think a lot of people are putting their dollars to work because we're such a valuable product.