Despite ongoing inflation, Americans increased their spending this holiday season, early data shows. That's a big relief for retailers who had spent much of the year worried that the economy would soon weaken and consumer spending would decline.
Retail sales rose 3.1 percent from November 1 to December 24 compared to the previous year. This is according to data from Mastercard SpendingPulse, which measures retail sales in stores and online across all payment types. The figures published on Tuesday are not adjusted for inflation.
Spending increased across many categories, with restaurants seeing the largest increase at 7.8 percent. Clothing increased by 2.4 percent, and food also recorded increases.
Holiday sales figures, driven by a healthy labor market and wage increases, suggest the economy remains strong. The Federal Reserve's campaign to curb high inflation by raising interest rates in recent years has slowed the economy, but many economists believe a so-called soft landing is within reach.
“What we're seeing this holiday season is very consistent with how we think about the economy, which is that it's an economy that's still expanding strongly,” said Michelle Meyer, chief economist at Mastercard.
Solid job growth is allowing people to spend more. And although consumer prices have risen sharply in the last two years, overall wages have risen faster.
“We're now entering the phase, and we're seeing it to some extent during the holiday season, where consumers have built real purchasing power,” Ms. Meyer said.
Still, spending in categories such as electronics and jewelry fell this season. And the growth rate of spending has slowed compared to recent years. According to the National Retail Federation, retail sales increased 5.4 percent during the holiday season in 2022. In 2021, they rose 12.7 percent, the largest percentage increase in at least 20 years. Online sales growth also slowed in 2023, increasing 6.3 percent, compared to 10.6 percent from 2021 to 2022, according to Mastercard.
Even though the economy is strong overall, Americans are increasingly mindful of their spending, and that discretion has shaped the shopping season.
Some retailers had expressed concerns in recent months that shoppers were depressed and worried about the economy. Walmart and Target noted that shoppers appeared to wait for sales before purchasing, a change from recent years when they spent more freely.
“The caution with which they approached their spending and the nature of their spending was clearly noticeable in the second half of the year, where many customers were affected, especially those with low and middle incomes,” said Jessica Ramírez, retail analyst at Jane Hali & Associates.
In a return to some of the pre-pandemic trends, many retailers and brands offered special offers. Discounts ranged from 30 to 50 percent, Ms. Ramírez said. But discounts this year were more targeted than last because fewer companies were struggling with excess inventory.
Categories that have struggled with declining sales this year – such as electronics, home furnishings and toys – saw some of the biggest discounts ahead of Christmas. These goods enjoyed booming sales during the pandemic.
Alexan Weir, a 30-year-old mother from Orlando, Florida, said she was pleased with the toy deals while shopping for Christmas presents for her daughters this month. Items she purchased at Target included the Asha doll, based on the main character from the Disney film “Wish”; an Elsa doll from “Frozen”; and a Minnie Mouse kitchen set. With discounts, the items together cost about half their total list price of $200.
“As a parent, you just try to make your children happy. They’re not trying to break the bank,” Ms. Weir said. “I spent a little more this year, but given the few sales I received, I can say I wasn't heartbroken by how much I spent.”
Barbie – whose banner year was fueled by a blockbuster film – sold particularly well in a year when there were no groundbreaking toys. The doll and her many accessories sold well at Mary Arnold Toys, a family-run store on Manhattan's Upper East Side. And overall sales at the store have been steady, said Ezra Ishayik, who has managed the store for 40 years.
“It looks like it’s comparable to last year – no better, no worse,” Mr Ishayik said. “The economy looks good to me. It's decent, it's fine, people buy. We are at the top end of the industry and therefore see no downward trend at all.”
But the last few months have been more challenging for Modi Toys.
Modi, an online retailer that sells plush toys and books related to Hindu culture, typically sees two sales increases in the fourth quarter – one in the run-up to Diwali and another around Christmas.
Normally, the company generates sales of more than $100,000 in the month leading up to Diwali, which fell on November 12, but this year sales dipped into five figures. In part, that was because the retailer released a product too early and then had to offer deep discounts to stimulate sales – something retailers try to avoid with new merchandise.
“That’s when we knew we were in for a really challenging holiday season,” said Avani Modi Sarkar, one of the company’s founders.
As she closes out the year and looks ahead to 2024, Ms. Sarkar is testing new digital marketing strategies, including sending personalized email newsletters to customers and closely monitoring discounts.
“We’re just trying to close the gap for ourselves and not end the year with as big of a gap as we would have,” she said. “I know what we’re capable of and I’m trying to not only reach that level again, but exceed it.”
A clear sign that shoppers are becoming more cautious about their spending comes from discount retailers. In November, Burlington, an off-price retailer and the parent company of Marshalls and TJ Maxx, said comparable store sales rose 6 percent.
Online retailer ThriftBooks' holiday sales also rose compared to last year, up more than 20 percent in November and more than 24 percent this month, said Ken Goldstein, the company's chief executive.
“This was unprecedented,” Mr. Goldstein said. “That’s incredible given the amount we do. Because we’re a low-cost product, I think a lot of people are putting their money where their mouth is.”