Spending in 2023 will be different amid economic situation

The first indications of Christmas shopping will be welcomed in September. Although starting your shopping early is always a good idea, the current economic situation has produced a conundrum that could affect people’s buying habits.

Early Christmas spending predictions indicate that consumers will have little to no choice but to be more cautious with their purchases this year. Even though it is just August, many people are already preparing for their holiday expenditures.

November and December are typically dominated by shoppers shopping for bargains and savings on Christmas gifts. They calculate consumer spending power with accuracy.

Since they make up one-fifth of all annual sales, the final two months of the year are crucial for merchants.

As merchants get ready for the crucial fourth quarter, which frequently results in overall profitability, some analysts anticipate that this year’s Christmas sales will be lower than in years past. In any case, sales will probably rise compared to last year.

According to John Harmon, senior retail/technology analyst at Coresight Research, “We are cautiously optimistic about the holiday season.”

According to Coresight, compared to 2022, year-end holiday sales will rise by the low single digits in October to December 2023.

The National Retail Federation forecasts a 5.3% rise in holiday sales over the prior year for November and December 2022. The statistics, however, do not suggest that the year is headed for a new low. Instead, it should be viewed as the US exiting an era of unprecedented economic activity.

Estimates for 2023, according to Harmon, are based on exceptional years with significant holiday sales growth, the challenges of making comparisons, and predicting when holiday spending may start.

“The patterns of holiday spending have changed,” claimed Harmon. “These days, not everything happens in the fourth quarter.”

Harmon’s comments made me think of the year 2021, when businesses like Amazon and Walmart started their holiday shopping in October out of concern for customer demand due to the pandemic. A comparable pattern was repeated in 2022, extending the Christmas shopping season.

For instance, Home Depot announced last week that it will start selling items with seasonal themes online. The business announced that it will follow the same strategy as in recent years to boost sales of holiday stuff in response to early customer interest in Christmas products.

Reduced sales

Contrarily, Harmon emphasized the fact that retail sales are dropping in the US. 

For the consumer, there are benefits and drawbacks, he added.

His assertion is supported by the fact that hourly wages in the US keep increasing year after year despite low labor force participation. As a result, a number of factors work to counteract any advantages that a household makes. According to Coresight, one of the difficulties is persistent (though slowly declining) inflation for goods including food, gas, housing, and the restart of student loan repayment, among other things.

“The savings rate has decreased, and the rise in consumer debt is concerning,” said Harmon.

Additionally, credit card debt has increased to record levels in the US. According to the Federal Reserve Bank of New York, credit card debt has officially surpassed $1 trillion.

Consumer and spending toughness

John Harmon claims that despite different challenges, consumers continue to be resilient by spending money on necessities, discretionary purchases, and services.

Sales trends for return to school in 2023 support this. According to S&P Global Market Intelligence, sales of goods associated to schools are forecast to increase 1.5% in 2023, while the inflation rate for back-to-school retail sales is predicted to drop from 5.9% in 2022 to 0.3% in 2023. The study finds that higher incomes have also contributed to reduced expenditure.

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Circana’s Marshal Cohen anticipates a further decline in gift spending.

The 2023 holiday season, according to Cohen, will start later in October than the 2022 holiday season, with Cyber Monday outpacing Black Friday and a long wait until the final two weeks before the holidays.

“Consumers are not in a rush to spend, and the lack of inspiration with so few brand-new and exciting items makes for a ho-hum holiday at retail,” Cohen observed.