The holiday season has come to a close, and it looks like consumers were more frugal this year due to inflation worries. According to the latest data from Mastercard’s SpendingPulse report, retail sales only rose 3.1 percent between November 1 and December 24, down from a 7.6 percent increase last year. However, it is still short of the company’s 3.7 percent estimate. Online sales also only advanced 6.3 percent, and in-store sales were up by 2.2 percent. The data revealed that consumers spent the most on restaurants, apparel, and groceries, while jewelry and electronics sales took a hit.
Michelle Meyer, the chief economist at Mastercard Economics Institute, sees this as a positive indication of consumer resilience despite the decline from last year. Even with the discounts offered by retailers like Amazon and Walmart during Black Friday, various headwinds such as higher prices and borrowing costs may have influenced consumer spending during the holiday season.
Moving forward, experts are looking at how consumers are faring leading into the new year. Consumer spending only increased by 0.2 percent in November, while retail sales climbed 0.3 percent. However, personal savings rates still managed to rise to 4.1 percent. Factors such as above-trend inflation, the depletion of pandemic savings, and high-interest rates are expected to influence consumer spending heading into 2024.
Meanwhile, the National Retail Federation (NRF) projected holiday sales growth to be in the range of 3 percent to 4 percent. However, the concern is whether this trend will continue into the next year. It is anticipated that consumers could slow down their spending as a result of various economic factors. The Conference Board economists predict a contraction in Q1 2024 and Q2 2024, with the possibility of consumption expanding later in the year as inflation and interest rates abate.
Furthermore, there is an ongoing debate surrounding the state of the U.S. economy, as BNY Mellon Investment Management’s Eric Hundahl asserts. The probability of a recession in the U.S. is considered to be elevated next year, with many awaiting further economic data to see how things unfold. However, the positive news is that consumer sentiment improved significantly in December as the University of Michigan’s Consumer Sentiment Index spiked to a five-month high.
It remains to be seen how consumers will navigate the challenges presented by inflation and changing interest rates in the coming year. Despite the uncertainties, the strength of consumer and household balance sheets will continue to play a critical role in shaping the future of the U.S. economy.
