Despite persistent inflation, Americans increased their spending during the holiday season, according to early data. This comes as a big relief to retailers who had spent much of the year fearing a rapid slowdown in the economy and a decline in consumer spending.
Retail sales from Nov. 1 to Dec. 24 increased 3.1% from a year earlier, according to data from Mastercard SendingPulse, which measures in-store and online retail sales across all forms of payment. The figures, published Tuesday, are not adjusted for inflation.
Spending increased across many categories, with restaurants seeing one of the largest increases at 7.8 percent. Apparel rose 2.4 percent and groceries also saw gains.
Holiday sales figures, driven by a healthy job 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 the way we view the economy, which is that it’s still an economy that’s still growing strongly,” said Michelle Meyer, an economist at head of Mastercard.
Strong job growth allows people to spend more. And even though consumer prices have risen significantly over the past two years, wages have increased more quickly overall.
“We are now entering a period, and we are seeing this to some extent during the holiday season, where consumers have built real purchasing power,” Ms. Meyer said.
Still, spending in categories like electronics and jewelry declined this season. And the rate of spending growth has moderated compared to the last two years. In 2022, retail sales during the holiday season increased 5.4%, according to the National Retail Federation. In 2021, they pink 12.7 percent, the largest percentage increase in at least 20 years. Online sales growth also slowed in 2023, increasing 6.3% from 10.6% from 2021 to 2022, according to Mastercard.
Although the economy is strong overall, Americans are more careful about how they spend, and that discretion has shaped the shopping season.
Some retailers had expressed concern in recent months that shoppers appeared gloomy and worried about the economy. Walmart and Target noted that shoppers seemed to wait for sales before purchasing, a change from recent years, when they spent more freely.
“The caution with which they’ve been spending and where they’re spending has been really noticeable in the second half, where a lot of customers have been impacted, particularly low- and middle-income people,” said Jessica Ramírez, retail research analyst at Jane Hali & Associates.
Going back to some of the trends that were prevalent before the pandemic, many retailers and brands offered promotions. The reductions were in the range of 30 to 50 percent, Ms. Ramírez said. But discounts were more targeted this year than last, as fewer businesses were saddled with excess inventory.
Categories that saw sales declines this year – such as electronics, furniture and toys – saw the biggest discounts ahead of Christmas. These products had seen booming sales during the pandemic.
Alexan Weir, a 30-year-old mother living in Orlando, Fla., said she was excited to find deals on toys when she shopped for Christmas gifts for her daughters this month. Among the items she purchased at Target were the Asha doll, based on the main character from the Disney movie “Wish”; an Elsa doll from “Frozen”; and a Minnie Mouse kitchen set. With discounts, the items together cost about half of their total list price of $200.
“As a parent, you’re just trying to make your kids happy. You’re not trying to break the bank,” Ms. Weir said. “I spent a little more this year, but at least with the few sales I made, I can say I wasn’t heartbroken by the amount I was spending.”
Barbie — whose banner year was fueled by a blockbuster movie — sold particularly well in a year when there was no escape toy. The doll and her many accessories sold well at Mary Arnold Toys, a family-owned store on Manhattan’s Upper East Side. And overall, the store’s sales have been steady, said Ezra Ishayik, who has run the store for 40 years.
“It looks like the situation is about the same as last year – no better, no worse,” Mr. Ishayik said. “The economy looks good to me. It’s okay, it’s okay, people are buying. We’re at the high end of the industry, so we’re not seeing any downward trend.
But the last few months have been more difficult for Modi Toys.
Modi, an online retailer, sells plush toys and books based on Hindu culture and typically sees two sales surges in the fourth quarter: one around Diwali and another around Christmas.
Normally, the company had a turnover of more than $100,000 in the month before Diwali, which fell on November 12, but this year, sales fell into the five-digit range. Part of the reason is that the retailer launched a product too early and then had to offer deep discounts to drive sales – something retailers try to avoid with new products.
“That’s when we knew we were really in for a tough holiday season,” said Avani Modi Sarkar, one of the company’s founders.
As she wraps up the year and looks toward 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 and not end the year with as big 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 surpass it.”
A clear sign that shoppers are more cautious about how much they spend comes from discount retailers. In November, Burlington, an off-price retailer, and the parent company of Marshalls and TJ Maxx reported seeing same-store sales increase 6 percent.
Online retailer ThriftBooks’ holiday sales also increased from last year, by more than 20 percent in November and more than 24 percent this month, said Ken Goldstein, the company’s chief executive. .
“It was unprecedented,” Mr. Goldstein said. “It’s unimaginable in terms of the volume we do. Because we are a valuable product, I think a lot of people are putting their money to good use.