Christina Beck is approaching this Christmas season with caution.
Ms. Beck, a 58-year-old school administrator, makes lists of gifts she wants to buy for her family and friends and sticks to them. But her spending this year will be limited by high food prices at grocery stores and restaurants, as well as the mortgage on a house in Minneapolis she bought with her best friend last year.
This best friend, Kristin Aitchison, can’t wait for the holidays. Ms. Aitchison, 55, who works in a retirement home, tells her family every year that she wants to make the holidays shorter and spend less. And every year she spends more than the year before.
“I’m a big gift giver,” said Ms. Aitchison, who began shopping in early November. “I enjoy giving gifts so much. I always run around the last week before Christmas because I just need to find a few more presents.”
There are many reasons people should be more cautious about their holiday spending this year. Although inflation isn’t as high as it was a year ago, millions of shoppers are still feeling sticker shock when grocery shopping. Federal student loan payments that were suspended during the pandemic have resumed. And higher interest rates led to higher credit card bills and, for home buyers, higher mortgage payments.
Still, consumer spending was surprisingly strong throughout 2023. The question for retailers is whether people will continue to spend during the holiday season or decide to pull back now.
The predictions are bleak. The National Retail Federation said it expects holiday sales to rise 3 percent to 4 percent from last year without taking inflation into account, in line with the level of the 2019 pre-pandemic season. But in a survey by the Conference Board, a nonprofit research group, consumers said they plan to spend an average of $985 on holiday items this year, slightly less than the $1,006 they expected to spend last year.
A closely watched leading indicator, Amazon’s Prime Day in October, showed that consumers were spending more, although only slightly. They spent an average of $144.53 on Prime Day, up 2 percent from last year’s average, according to Facteus, which analyzed credit and debit card transaction data.
Last week, the Commerce Department reported that nationwide retail sales fell 0.1 percent in October from September, the first decline since March. Walmart executives also warned that consumer spending fell in the last two weeks of October, noting that people appeared to be waiting for sales.
“It makes us more cautious with consumers as we look ahead to the fourth quarter,” John David Rainey, Walmart’s chief financial officer, said in an interview. “I think the numbers probably fluctuate more.”
Still, the decline in retail sales was smaller than the decline many economists had expected after a summer of heavy spending, and some analysts saw it as a sign of continued resilience among consumers.
According to Tim Quinlan, senior economist at Wells Fargo, holiday sales are expected to be decent by pre-pandemic standards, although not as strong as the gangbuster 2020 and 2021 seasons.
Higher-income buyers still have plenty of additional savings during and after the pandemic, but those with lower incomes have depleted their resources more completely, Quinlan said. Higher interest rates may also discourage shoppers from paying for their holiday shopping with credit cards. The combination of reduced savings and higher payments “makes it harder to have a big pile of gifts under the tree this year,” he said.
For much of the year, consumer spending was supported by continued strength in the labor market and wage increases. The average hourly wage rose by 4.1 percent in October compared to the previous year. That was faster than inflation. Measured by the consumer price index, prices rose by 3.2 percent.
Nevertheless, signs of a slowdown are beginning to appear. Wage growth is slowing and the unemployment rate has risen in recent months. Like Mr. Quinlan, many economists believe consumers are increasingly depleting their savings, although some studies suggest many are slow to use up their financial buffers.
For many, resuming student loan payments means limiting their vacation plans. In a holiday survey by consulting firm Deloitte, 17 percent of respondents said they would have to resume student loan payments, and nearly half of them said they plan to reduce their holiday spending as a result.
In recent years, Tara Cavanaugh, a 37-year-old marketing manager, has spent up to $1,500 on gifts for her family, friends and various corporate parties, she said. This year, after a move with her partner to Boulder, Colorado, and resuming her student loan payments of $400 a month — her partner also has student loan debt — she said she would reduce her gift list, expecting it to be closer to $200 spend.
“We both make decent wages and live simply, sharing an old car and our furniture is still from Ikea, but it still feels like we have problems,” Ms. Cavanaugh said of her and her partner. “I know a lot of us are miserable, so I’m not going to freak out about giving gifts to people older than me who are okay and don’t need anything.”
As always, many people are looking for deals, be it on Black Friday or other pre-Christmas sales. According to a survey by market research firm Forrester, around 52 percent of consumers plan to look for bargains and special offers online this year, and 39 percent plan to look for bargains in stores.
When the Amazon toy catalog landed in Claire Kielich’s mailbox in Austin, Texas, her two daughters, ages 5 and 10, who also have birthdays in December, began circling what they wanted.
“I’ll be watching to see if any of these things go on sale for Black Friday,” said Ms. Kielich, 40, who is responsible for product development and procurement in the furniture industry. She said she expects to spend about $1,000 this holiday season and already has a stash of holiday gifts hidden in one of her closets.
Ms. Beck in Minneapolis began shopping for Christmas gifts in July, making lists of what friends and family needed or liked, purchasing unique items from local craft stores or small local businesses and storing them in what she called her “gift drawer.” This approach, she said, helps her think more about her gifts and prevents her from going over budget.
Her best friend, Ms. Aitchison, takes the opposite approach. While she’s careful with her finances throughout the year, when it comes to the holidays she has no plan and basically no budget. Her eldest child has forbidden her from ever buying him corduroy pants again. Last year she bought four 9-foot-tall inflatable dinosaur costumes for her adult children.
“Of course no one needs an inflatable dinosaur costume,” admitted Ms. Aitchison.
This holiday season, she plans to shop until she drops.
“I don’t think about what I’m going to spend,” she said. “Since I spent all my money in January and February, I eat beans and rice while I pay the bills.”
Despite their different Christmas shopping styles, Ms. Aitchison said she and Ms. Beck always had fun shopping together.
“She doesn’t understand nearly as many things as I do,” Ms. Aitchison said. “She always says, ‘Kristin, stop.’ Put that down. You don’t need it.’”