Despite persistent inflation, Americans increased their spending this holiday season, early data showed. This comes as a huge relief to retailers who spent much of the year fearing the economy would soon weaken and consumer spending would decline.
Retail sales increased 3.1% from Nov. 1 to Dec. 24 compared to the same period a year earlier, according to data from Mastercard SpendingPulse, which measures in-store and online retail sales across all forms of payment. The figures, released on Tuesday, were not adjusted for inflation.
Spending increased across many categories, with restaurants seeing one of the biggest jumps at 7.8%. Clothing prices rose 2.4%, and grocery stores also made gains.
Holiday sales numbers, driven by a healthy job market and wage gains, suggest the economy remains strong. The Federal Reserve’s campaign to rein in high inflation by raising interest rates over the past few years has slowed the economy, but many economists believe a so-called soft landing is at hand.
“What we are seeing during this holiday season is very consistent with how we think about the economy, which is that it is an economy that is still expanding significantly,” said Michelle Mayer, chief economist at Mastercard.
Strong job growth allows people to spend more. Although consumer prices have risen a lot in the past two years, wages have grown faster overall.
“We are now entering this period, and we see that to some extent during the holiday season, where consumers are building real purchasing power,” Ms. Mayer said.
Spending in categories like electronics and jewelry continues to decline this season. The growth rate in spending has become moderate compared to the past two years. In 2022, holiday retail sales increased by 5.4 percent, according to the National Retail Federation. In 2021, they are rose 12.7 percent, the largest percentage increase in at least 20 years. Online sales growth also slowed in 2023, rising 6.3 percent compared to 10.6 percent from 2021 to 2022, according to Mastercard.
While the economy is generally strong, Americans are becoming more conscious of how they spend, and this appreciation has shaped the shopping season.
Some retailers have expressed concerns in recent months that shoppers appear fearful and fearful about the economy. Walmart and Target note that shoppers seem to be waiting for sales before purchasing, a change from recent years when they spent more freely.
“The caution they took about their spending and where they spent it was really noticeable in the second half of the year, where a lot of customers were affected, especially people on low and middle incomes,” he said. Jessica Ramirez is a retail research analyst at Jane Hali & Associates.
In a return to some pre-pandemic trends, many retailers and brands have offered promotions. Ms. Ramirez said discounts ranged from 30 to 50 percent. But the cuts were more targeted this year than last because fewer companies were burdened by an abundance of inventory.
Categories that faced declining sales this year — such as electronics, home furnishings and toys — saw some of the biggest discounts leading up to Christmas. These goods have enjoyed booming sales during the pandemic.
Alexanne Ware, a 30-year-old mother who lives in Orlando, Florida, said she was happy to find deals on toys when she bought Christmas gifts for her daughters this month. Among the items she purchased from Target was an Asha doll, inspired by the main character from the Disney movie “Wish.” Elsa doll from the movie “Frozen”; And Minnie Mouse kitchen set. With the discounts, the items together cost about half of the total menu 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 had, I can say I didn’t feel sad about The amount you spent.
Barbie – whose blockbuster movie was a hit – sold particularly well in a year in which there was no featured toy. The doll and its many accessories sold well at Mary Arnold Toys, a family-owned store on the Upper East Side of Manhattan. Ezra Ishaik, who has run the store for 40 years, said overall sales at the store have been steady.
“It seems to be the same as last year — not better, not worse,” Mr. Ishaik said. “The economy looks good to me. It’s decent, it’s OK, people are buying. We’re at the top of the industry, so we don’t see any downside at all.”
But the past few months have been more difficult for Moody Toys.
Modi, an online retailer, sells plush toys and books based on Hindu culture, and typically sees two spikes in sales in the fourth quarter – one in the run-up to Diwali and the other around Christmas.
The company typically does more than $100,000 in sales in the month leading up to Diwali, which falls on Nov. 12, but this year sales have fallen into the five-figure range. 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 challenging holiday season,” said Avani Modi Sarkar, the company’s founder.
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 keeping a close eye on discounts.
“We’re just trying to bridge the gap for us and not end the year with as big of a gap as we would have,” she said. “I know what we are capable of, and I am trying to not only reach this level again, but exceed it.”
One clear sign that shoppers are becoming more careful about how much they spend comes from retailers offering discounts. In November, Burlington, an off-price retailer and parent of Marshalls and TJ Maxx, said it saw a 6 percent comparable-store sales increase.
Online retailer ThriftBooks said its sales were also up this holiday season, by more than 20 percent in November and more than 24 percent this month compared to last year, according to Ken Goldstein, the company’s CEO.
“This was unprecedented,” Goldstein said. “This is incredible in terms of the volume we do. Because we are a value product, I think a lot of people are putting their money into the business.