The last hurrah? Holiday shoppers are ready to spend, but it may be a final gasp before U.S. economy heads south
U.S. shoppers are expected to shell out a bit more than they did last year during the upcoming holiday season, but spending growth will be well off the record pace of the last two years. And, it could be the last spending spurt before an expected economic recession takes hold
Even in the face of inflation that’s been running at or near 40-year highs for months, and a likely recession looming on the horizon, U.S. consumer spending has remained vibrant, and resilient, beyond almost every economist’s expectations.
It’s a metric that has been vexing the Federal Reserve in its attempts to cool down the economy, aka reduce consumer spending, through a series of aggressive benchmark interest rate hikes this year. Fueled in part by lingering federal stimulus cash and a shift from services to goods amid pandemic restrictions, the high level of spending has been a boon for U.S. retailers who have been cashing in for the past few years. And, according to fresh predictions on sales volumes for the upcoming holiday shopping season, U.S. consumers are likely to keep their spending mojo rising for at least the next few months.
But, the same economists who see sunshine and high store receipts for the busiest retail season of the year also believe the U.S. economy will soon see a tide shift, in the form of an economic recession, that is likely to dramatically dampen the consumer exuberance that’s been running rife since mid-2020.
Results from a new Deseret News/Hinckley Institute of Politics poll finds most Utahns are planning on spending about the same or more on holiday gifts as they did last year, even as most are also concerned about inflation and the potential for a looming recession.
The statewide poll of 801 registered Utah voters found 43% of respondents plan to spend about what they did last year on holiday gifts, and 11% will be upping their holiday budgets. Budget decreases are in store for 44% of poll participants, and 2% said they were undecided or didn’t know how their holiday shopping budgets would change.
The survey was conducted by Dan Jones and Associates on Oct. 3-6 and the results come with a margin of error of plus or minus 3.46%.
Is it too early to be talking about holiday shopping?
In strategic moves that seem to be launching earlier and earlier every year, some retailers have already begun hosting holiday shopping sales, including online retail giant Amazon, which that held an “Early Access” redux of Prime Day on Oct. 11-12, and Walmart, which threw a pre-Black Friday sale from Oct. 10-13 in an effort to entice super-early holiday shoppers.
A new Wells Fargo forecast of the upcoming 2022 holiday shopping season noted retailers are embracing early holiday sales tactics in large part because they work. This year, amid inflation that’s been driving the prices of most goods up on a monthly basis, consumers have an extra incentive to spend early as a way to preempt potential price hikes as the holidays draw closer.
Holiday spending will be up this year, but not by much
Wells Fargo economist Shannon Seery, a co-author of the holiday spending report, said the trend of strong consumer spending will carry into the 2022 holiday season and overall sales will be up over 2021. But, Seery noted that after adjusting for inflationary increases, that bump will be considerably smaller than the record-setting growth U.S. retailers have seen the previous two years.
“We expect to see a 6% annual gain in holiday spending,” Seery said. “But a lot of that will be driven by price increases. The holiday sales increases, in real gains, will be closer to 2%.”
Seery and her co-authors found that, looking back over the past 28 years, the two biggest annual increases in holiday sales have occurred in each of the past two years.
Adobe Digital Insights also dropped a holiday shopping forecasts report this month, but it’s one focused on forecasting holiday online spending.
Adobe analysts predict growth for online retail sales over the holiday season will slow considerably as overall inflation curbs consumer spending capacity. They predict holiday online sales will move up 2.5% this year and hit nearly $210 billion, but noted earlier discounts and more constrained spending could also lead to a slight drop, around 2%, compared to 2021 online spending for the end-of-year holidays.
The 2022 holiday consumer is worried, and running out of savings
Seery said household savings rates that shot up during the COVID-19 pandemic have cooled considerably, noting the current average savings rate of 3.5% is the lowest since the lead up to the 2007 financial crisis. Excess savings, bolstered by federal stimulus disbursements and consumer spending that saw a massive shift from services to goods amid pandemic restrictions, are now dwindling. And the escalating prices on basic necessities, driven by ongoing inflation, has helped accelerate the depletion of those extra savings.
Wells Fargo economists are among a majority of U.S. fiscal experts who are now predicting an economic recession will take hold in the coming year.
Polling conducted last month by the Deseret News in partnership with the Hinckley Institute of Politics found out exactly how much more Utahns have been shelling out amid inflationary conditions and heard how consumers are feeling about their household financial health.
When asked “how much more per month are you paying for basic goods,” 32% of survey participants said they were spending $201-$400 more per month now, 28% said they were spending $101-$200 more, and 22% said increased prices were impacting their budgets by more than $400 per month.
And, when it comes to comparing their current financial well-being to a year ago, 47% of respondents from the September poll said they were worse off, 31% said they were better off and 22% reported their financial health was unchanged in the past year.
While average wage gains for U.S. workers have seen strong growth in the past year, the increase in earnings have fallen far short of inflation rates that have been running at or near 40-year highs for months.
The latest U.S. Labor Department report on employment data found wages for U.S. workers averaged $32.46 per hour in September, up 10 cents per hour over August and 5% over the same time last year.
Even as the interest rate increases enacted this year by the Federal Reserve have aimed to quell the red-hot U.S. economy and combat inflation, earlier this month the U.S. Department of Labor reported the consumer price index rose 0.4% in September and is up 8.2% from a year ago.