US Holiday Retail Sales Slow From Last Year, Mastercard Data Show

Shoppers look at clothes while others walk around Twelve Oaks Mall in Novi, Mich., on Nov. 24, 2023. Emily Elconin/Getty Images

Price-conscious consumers were a bit more reserved in their holiday shopping this year as above-trend inflation and higher interest rates weighed on shoppers during the most wonderful time of the year, new data show.

Retail sales rose by 3.1 percent between Nov. 1 and Dec. 24, down from last year’s 7.6 percent spike, according to Mastercard’s latest SpendingPulse report. The results fell short of the company’s 3.7 percent estimate.

Online sales advanced by 6.3 percent, down from the 10.6 percent gain at the same time a year ago. In-store sales edged up by 2.2 percent, down from 6.8 percent in 2022.

The data, which aren’t adjusted for inflation and exclude automotive sales, revealed that consumers spent the most on restaurants (7.8 percent), apparel (2.4 percent), and groceries (2.1 percent). Jewelry and electronics sales tumbled by 2 percent and 0.4 percent, respectively.

Despite the decline from 2022, the numbers highlighted a resilient consumer and healthy economic backdrop, says Michelle Meyer, chief economist at Mastercard Economics Institute.

“This holiday season, the consumer showed up, spending in a deliberate manner,” Ms. Meyer said in a statement. “The economic backdrop remains favorable with healthy job creation and easing inflation pressures, empowering consumers to seek the goods and experiences they value most.”

Market analysts say the discounts weren’t as deep as in previous years despite large retailers such as Amazon and Walmart accelerating promotions heading into Black Friday and Cyber Monday.

While more Christmas-related spending data will be released in the coming weeks, the early estimates could highlight that the various headwinds, such as higher prices and borrowing costs, are beginning to reverse the narrative of a strong consumer.

“Even so, holiday spending is likely to be propped up by the presence of pandemic-era savings, as well as a robust labor market. Higher interest rates, economic uncertainty, waning confidence, and the shifting mix of consumer spending, however, are likely to present opposing headwinds,” TD economist Shernette McLeod wrote in a U.S. retail holiday outlook last month.

The National Retail Federation projected that holiday sales growth will be in the range of 3 percent and 4 percent this year.

Consumers Taking a Break

Recent figures suggest consumers could be slowing down their spending heading into the new year.

In November, consumer spending edged up by just 0.2 percent, according to the Bureau of Economic Analysis (BEA). This was up from the 0.1 percent pace recorded in October.

The U.S. Census Bureau reported that retail sales increased by 0.3 percent in November, up from the 0.2 percent decline in the previous month and the 1.4 percent plunge at the same time a year ago.

Additionally, BEA statistics confirmed that the personal savings rate crept up to 4.1 percent in November.

Economists note that the combination of ebbing real disposable personal income growth, above-trend inflation, the exhausting of pandemic-era savings, the resumption of student loan payments, and high interest rates are diminishing consumers’ appetite and ability to mirror the spending observed earlier in the year.

Even if the holiday season proves to be strong, experts argue that the trend will unlikely persist in 2024.

The Conference Board economists anticipate that consumer spending will be unable to maintain the trend seen in recent years, citing dwindling pandemic savings, growing household debt, elevated inflation and interest rates, and new student loan repayment requirements.

“Thus, we forecast that overall consumer spending growth will slow towards yearend and then contract in Q1 2024 and Q2 2024. As inflation and interest rates abate later in 2024, we expect consumption to begin to expand once more,” The Conference Board states in its latest forecast.

Consumers could start to bend, but they won’t be broken in 2024, according to Ginger Chambless, head of research of commercial banking at JPMorgan Chase.

Ms. Chambless identified plateauing wage gains, lower excess savings, less pent-up demand, and a rise in subprime borrowing and millennial credit card delinquencies as “emerging signs of stress for some consumers.”

However, robust household balance sheets and tight labor markets could prompt consumers to keep spending, she said.

“Considering the cross currents, we think consumer spending growth can stay positive overall in 2024, but at a lower rate than 2023,” Ms. Chambless wrote in a note.

People shop at an Abercrombie & Fitch store during "Black Friday" in New York on Nov. 24, 2023. Yuki Iwamura/AFP via Getty Images

Overall, there’s plenty of debate over what the next 12 months will bring to the U.S. economy, particularly on the recession front, said Eric Hundahl, head of portfolio strategy for BNY Mellon Investment Management.

“The probability of a recession in the US is elevated next year relative to history, but the economic data continues to surprise us on the upside, and the market is much more resilient than what many people expected going into this year,” Mr. Hundahl said in a research note. “That’s largely driven by the strength of consumer and household balance sheets, but also because inflation has surprised us to the downside, which tells us that the Fed probably doesn’t have to do much more.”

The good news for the economy’s future is that consumer sentiment dramatically improved in December.

After a sharp four-month decline, the University of Michigan’s Consumer Sentiment Index spiked to a five-month high. The Current Economic Conditions and Consumer Expectations Indexes also ballooned this month.

“Consumer sentiment confirmed its mid-month reading and soared 14% in December, reversing all declines from the previous four months. These trends are rooted in substantial improvements in how consumers view the trajectory of inflation,” Joanne Hsu, surveys of consumers director at the University of Michigan, said in the monthly index readings.