US holiday spending expected to be up 3.2% year-on-year this season

US shoppers are expected to spend 3.2 percent more this holiday season than last year, as retailers nationwide kick off the seasonal period earlier each year.

According to Mastercard’s latest SpendingPulse Insights data, which tracks in-store and online retail sales across all payment types, US holiday shoppers will likely concentrate most of their spending during promotional periods between November 1 and December 24, 2024. Similar to patterns observed during the 2023 holiday season, US consumers are expected to be on the lookout for the best deals. However, due to shifts in the US economic landscape, many shoppers may feel more financially stretched this year, with less of a safety net to fall back on. Why? Although job creation remains steady, hiring rates have decelerated, even though layoff rates are low and job openings still slightly outpace unemployment.

However, actual wages continue to grow, with nominal wage increases above pre-COVID levels and surpassing underlying inflation rates, which have also moderated according to Mastercard’s report for US Holiday Spending Outlook 2024. In addition, the Federal Reserve has begun easing monetary policy after previous interest rate increases in 2023, reducing interest rates in time for the holiday season and potentially offering borrowers some financial relief. At the same time, household debt has risen together with household wealth, with financial assets growing in value with housing, offering a positive effect on wealth for home and property owners. Nonetheless, rising debt levels and interest rates have led to increased costs for debt repayment.

Key trends to watch out for this holiday shopping season

So what does this mean for US retailers? According to the report, there are a few key trends to look out for, in addition to predicting some of the main habits of US holiday shoppers. One of them is the impact of the calendar dates of the holiday season itself, as Black Friday takes place later in November than the previous year. Retailers and brands may start seasonal promotions and offers earlier in the month rather than focusing them during the Black Friday weekend or week, which could also see shoppers holding off on holiday shopping until December, especially when it comes to online shopping.

US shoppers’ desire for convenient, anytime shopping in an omnichannel environment is expected to drive online shopping during the holiday season. The Mastercard Economics Institute (MEI) forecasts a 7.1 percent year-over-year growth in online retail sales, with the Mastercard SpendingPulse Insights predicting a stronger preference for online apparel shopping, as e-commerce represents a larger share of total sales compared to last year. With many US shoppers expected to buy and gift fashion items this holiday season, online apparel sales are predicted to grow 4.5 percent year-over-year, according to the Mastercard SpendingPulse, while in-store apparel sales are expected to increase by 2.0 percent.

The 2024 holiday season is also likely to reflect a spectrum of consumer shopping behavior. On the one hand are budget-conscious US shoppers who see discounts as essential, while on the other are confident spenders who can spend more easily and freely. Most consumers fall somewhere between, adjusting their spending habits as circumstances shift. For many US shoppers this holiday season, the state of their household health has become a key differentiator. Since late 2019, households with financial and real estate assets have seen notable gains, with financial assets up 31 percent and real estate up 49 percent. However, rising interest rates have strained some households with debt, especially those who recently financed a home or car or hold student loans. However, homeowners who secured low mortgage rates before 2022 and avoided this increased debt burden may have a wider budget for holiday shopping.

The impact of economic conditions on holiday shopping in 2024

The report also notes that economic conditions vary widely by region and are influenced by increased household mobility and companies relocating post-pandemic. Generally, Mountain and Sunbelt states have seen strong in-migration, fostering healthier economies with robust business growth and job creation, while some areas in the Northeast and Midwest face more challenges. Naturally, trends differ across states, counties, and even zip codes, but this is likely to impact US holiday shopping spending across the country. In addition, labor market trends reveal that health care, social assistance, and government sectors have driven most job growth this year, while manufacturing, mining, and information have seen little change. Wage growth, once robust in lower-paid sectors, has recently slowed, leaving workers in these areas especially affected by rising costs of essentials since the pandemic, meaning these US shoppers are probably on a much tighter budget this holiday season.

Overall, economic conditions, including easing inflation and potential interest rate cuts, will heavily influence US consumer spending this holiday season. Retailers are advised to closely monitor evolving preferences to navigate this dynamic period successfully.