Consumers Defy Economic Concerns, Boost Holiday Spending

Despite worries about the economy, consumers refused to let it dampen their holiday celebrations this year. Preliminary data from Mastercard SpendingPulse reveals that Americans spent 3.1% more during the holiday season compared to the previous year (excluding car sales), covering the period from November 1st to December 24th.

Michelle Meyer, the Chief Economist at Mastercard Economics Institute, commented on the strong showing by consumers during this holiday season. She said, “This holiday season, the consumer showed up, spending in a deliberate manner. The economic backdrop remains favorable with healthy job creation and easing inflation pressures, empowering consumers to seek the goods and experiences they value most.”

Experts were initially concerned that higher interest rates, inflation, and overall pessimism about the economy would discourage people from spending as much as they have in previous years. Although Mastercard’s preliminary figure falls slightly short of the company’s projection of a 3.7% sales increase from the previous year, it is still considered solid spending. Moreover, it is within the range predicted by other forecasters for the season.

Ivan Feinseth, Chief Investment Officer at Tigress Financial Partners, remarked, “Holiday spending continues to be surprisingly strong even as most consumers are reportedly unenthusiastic about their current economic situation.”

Notably, Mastercard’s data indicates a return to pre-pandemic shopping habits for many Americans. Senior Advisor for Mastercard, Steve Sadove, points out this shift in consumer behavior. While spending on durable goods has grown at a slower pace, people are splurging on dining out. Restaurant spending has jumped by 7.8% compared to the previous year, while grocery sales saw a modest increase of 2.1%.

This holiday season’s spending results highlight consumers’ resilience and desire for meaningful experiences and products, reflecting a positive economic outlook with healthy job growth and manageable inflation.

The Rise of Online Shopping: A Lasting Pandemic Trend

It comes as no surprise that consumers have embraced online shopping amidst the pandemic. According to Mastercard, online retail sales have surged by 6.3% this year, outpacing the modest 2.2% growth seen in physical stores.

This trend was beautifully demonstrated during the recent Black Friday weekend, where online sales reached record highs. The remarkable growth in e-commerce and dining played a significant role in November’s unexpectedly strong retail sales report.

As we enter the holiday season, it is evident that Americans are continuing their spending spree. Throughout 2023, consumers have been the primary force driving our economy forward, and it appears this momentum will persist well into the new year.

Although official figures on holiday spending won’t be available until mid-January, investors are already optimistic about the trend. The SPDR S&P Retail ETF experienced a 0.6% increase in early morning trading on Tuesday, slightly ahead of the S&P 500’s 0.3% gain.

However, some investors are urging caution.

A group of strategists from the Wells Fargo Investment Institute expressed their concerns in a note on Tuesday. They believe that an economic slowdown is inevitable as consumer spending, which has been a dominant force, begins to taper off in the first part of the new year. Several factors contribute to this outlook: the exhaustion of excess pandemic cash balances for most income groups, rising credit delinquencies, increasing reliance on credit to sustain purchases, and the confirmation of early weakness in consumer spending from corporate earnings transcripts of the third quarter.

Overall, while online shopping continues to thrive and drive retail sales, it is crucial to approach the future with caution and monitor potential economic headwinds.