US holiday spending rises, defying fears of a decline

NEW YORK – Despite lingering inflation, Americans increased their spending this holiday season, early data shows.

That comes as a big relief for retailers that had spent much of the year fearing the economy would soon weaken and consumer spending would fall.

Retail sales from Nov 1 to Dec 24 increased 3.1 per cent from a year earlier, according to data from Mastercard SpendingPulse, which measures in-store and online retail sales across all forms of payment.

The numbers, released on Dec 26, were not adjusted for inflation.

Spending increased across many categories, with restaurants experiencing one of the largest jumps, 7.8 per cent.

Apparel increased 2.4 per cent and groceries also had gains.

The holiday sales figures, driven by a healthy labour market and wage gains, suggest that the economy remains strong.

The US Federal Reserve’s campaign to rein in high inflation by raising interest rates over the past few years has slowed the economy, but many economists believe a so-called soft landing is within reach.

“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 Mastercard’s chief economist Michelle Meyer.

Solid job growth is allowing people to spend more. And even though consumer prices have risen a lot in the past two years, wages have grown faster on the whole.

“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.

Still, spending in categories like electronics and jewellery declined this season.

The rate of growth in spending has also moderated from the past couple of years.

In 2022, retail sales during the holiday season increased 5.4 per cent, according to the National Retail Federation. In 2021, they rose 12.7 per cent, the largest percentage increase in at least 20 years.

Online sales growth has also slowed in 2023, increasing 6.3 per cent compared with 10.6 per cent from 2021 to 2022, according to Mastercard.

While the economy is strong overall, Americans are being more mindful of how they are spending, and that discretion shaped the shopping season.

Some retailers had expressed concerns in recent months that shoppers appeared glum and fearful about the economy. Walmart and Target noted that shoppers seemed to be waiting for sales before buying, a change from recent years when they spent more freely.

“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 Jane Hali & Associates retail research analyst Jessica Ramirez.

In a return to some of the trends that prevailed before the Covid-19 pandemic, many retailers and brands offered promotions.

Discounts were in the 30 per cent to 50 per cent range, Ms Ramirez said.

But the discounts were more targeted in 2023 than 2022 because fewer companies were saddled with gluts of inventory.

The categories that have faced falling sales in 2023 – like electronics, home furnishings and toys – saw some of the biggest discounts leading up to Christmas.

Those goods had enjoyed booming sales during the pandemic.

Barbie – whose banner year was fuelled by a blockbuster movie – sold particularly well in a year when there was no breakout toy.

One clear sign that shoppers are being more careful about how much they spend comes from discount retailers.

In November, Burlington, an off-price retailer and the parent company of Marshalls and T. J. Maxx, said it saw comparable store sales increase 6 per cent.

Mr Ken Goldstein, chief executive of online retailer ThriftBooks, said the company’s holiday sales were also up from a year ago, by more than 20 per cent in November and more than 24 per cent in December. NYTIMES