Despite persistent inflation, Americans increased spending during the holiday season, early data shows. This comes as a big relief to retailers who had spent much of the year fearing that the economy would soon weaken and consumer spending would collapse.
Retail sales from Nov. 1 to Dec. 24 rose 3.1% from a year earlier, according to data from Mastercard SpendingPulse, which measures in-store and online retail sales across all forms of payment. The numbers, released Tuesday, are not adjusted for inflation.
Spending increased across many categories, with restaurants seeing one of the largest increases of 7.8%. Clothing rose 2.4% and groceries also posted gains.
Holiday sales data, driven by a healthy job market and wage gains, suggests the economy remains strong. The Federal Reserve’s campaign to contain high inflation by raising interest rates has slowed the economy in recent years, 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 this is still a booming economy,” said Michelle Meyer, chief economist at Mastercard.
Solid job growth allows people to spend more. And although consumer prices have risen sharply over the past two years, wages have grown faster overall.
“We are entering a period, and we see this to some extent during the holiday season, where consumers have built up real purchasing power,” Ms. Meyer said.
However, spending in categories such as electronics and jewelry has declined this season. And the rate of spending growth has moderated over the past two years. In 2022, holiday season retail sales increased 5.4%, according to the National Retail Federation. In 2021, they increased by 12.7%, the largest percentage increase in at least 20 years. According to Mastercard, online sales growth also slowed in 2023, increasing 6.3% compared to 10.6% from 2021 to 2022.
While the economy is strong overall, Americans are more careful about how they spend, and that discretion has affected the shopping season.
Some retailers had expressed concern in recent months that shoppers appeared gloomy and fearful about the economy. Walmart and Target noticed that shoppers seemed to wait for sales before purchasing, a change from recent years when they spent more freely.
“The caution with which they spend and where they spend was really evident in the second half of the year, where a lot of customers were affected, especially low- and middle-income customers,” said Jessica Ramírez, retail research analyst at Jane Hali & Associates.
In a return to some of the trends prevalent before the pandemic, many retailers and brands have been offering promotions. The discounts were between 30 and 50 percent, Ms. Ramírez said. But the discounts were more targeted this year than last because fewer companies were burdened by excess inventory.
Categories that have suffered declining sales this year – such as electronics, home furnishings and toys – saw some of the biggest discounts in the run-up to Christmas. Such goods had enjoyed booming sales during the pandemic.
Alexan Weir, a 30-year-old mother from Orlando, Florida, said she was pleased to find deals on toys when she bought Christmas presents for her daughters this month. Among the items she purchased from Target were 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 the total list price of $200.
“As a parent you’re just trying to make your kids happy. You’re not trying to spend a fortune,” Ms. Weir said. “I spent a little more this year, but at least with the few sales I got, I can say I wasn’t heartbroken about how much I was spending. “
Barbie, whose peak year was fueled by a hit movie, sold particularly well in a year when there wasn’t a hit toy. The doll and her many accessories have sold well at Mary Arnold Toys, a family-owned store on Manhattan’s Upper East Side. And the store’s overall sales have remained stable, said Ezra Ishayik, who has run the store for 40 years.
“It seems like the situation is on par with last year – no better, no worse,” Ishayik said. “The economy looks good to me. It’s decent, it’s good, people buy. We are at the top end of the industry, so we don’t see any downward trend.”
But the last few months have been busier for Modi Toys.
Modi, an online retailer, sells plush toys and books based on Hindu culture and usually sees two sales increases in the fourth quarter: one in the run-up to Diwali and another around Christmas.
Normally the company makes more than $100,000 in sales in the month leading up to Diwali, which fell on Nov. 12, but this year sales fell to five figures. This is partly because the retailer launched 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 going to have a really busy holiday season,” said Avani Modi Sarkar, one of the company’s founders.
As she wraps up the year and looks ahead to 2024, Ms. Sarkar is testing new digital marketing strategies, including sending personalized email newsletters to customers and closely tracking discounts.
“We’re just trying to close the gap for us and not end the year with as big of a gap as we would have liked,” he 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 paying more attention to how much they spend comes from discount retailers. In November, Burlington, an off-price retailer, and the parent company of Marshalls and TJ Maxx said they saw comparable store sales rise 6%.
Online retailer ThriftBooks’ holiday sales were also up from a year ago, more than 20% in November and more than 24% this month, said Ken Goldstein, the company’s chief executive.
“This was unprecedented,” Goldstein said. “This is incredible in terms of the volume we’re doing. Since we are a value product, I think a lot of people are investing their money.”