Holiday expenditure surged, alleviating concerns about an economic downturn

Holiday Spending Surges, Easing Worries of Economic Downturn | Mr. Business Magazine

Consumer spending demonstrated robust growth during this year’s holiday season, dispelling concerns of an economic slowdown and reinforcing positive indicators for the U.S. economy as it navigates through the challenges of the year-end period.

According to data released on Tuesday by Mastercard SpendingPulse, which tracks both in-store and online purchases across various payment methods from November 1 to December 24, consumer spending during the holidays increased by 3.1% compared to the same period last year. The data is not adjusted for inflation.

Economy Stabilizing Gradually?

Economists had expressed worries about a potential decline in spending, focusing on factors such as a reduction in pandemic-era savings and an increase in borrowing rates for consumer loans like credit cards. However, the significant decrease in inflation over the past year provided some relief for consumers. Additionally, robust job creation and steady wage growth supported shoppers, who contribute to nearly three-quarters of U.S. economic activity.

Michelle Meyer, the chief economist at the Mastercard Economics Institute, stated, “This holiday season, the consumer showed up, spending in a deliberate manner.” She emphasized the favorable economic backdrop, with healthy job creation and easing inflation pressures, empowering consumers to pursue the goods and experiences they value.

Holiday spending saw the most significant surge in restaurants, experiencing a 7.8% growth compared to the same period last year, according to Mastercard SpendingPulse. Apparel also witnessed a notable increase, rising by 2.4%. However, purchases of electronics and jewelry declined compared to the corresponding period in 2022.

E-commerce Sales Increased:

Online retail sales experienced rapid growth, surging over 6%, while in-store purchases grew at a more moderate pace of 2%. Despite the higher online growth rate, the majority of purchases still occurred in person, contributing to the overall 3.1% growth.

US holiday retail sales surge by 3.1%: Mastercard

The positive momentum in holiday shopping followed strong sales on Black Friday, where consumers spent a record $9.8 billion online, marking a 7.5% increase from the previous year, according to Adobe Analytics.

Various economic indicators, including a low unemployment rate, wage growth surpassing inflation, and resilient savings for upper- and middle-income households, provided a favorable environment for consumers entering the holiday season. The U.S. economy exhibited a robust annualized growth rate of 4.9% in the three months ending in September, more than doubling the growth in the previous quarter.

Credit Card Purchases Increased:

Despite these positive signs, concerns arose as credit card debt reached a record high in the third quarter of 2023, rising nearly 5% from the previous quarter. The Federal Reserve’s interest rate hikes led to increased borrowing costs, contributing to the growing debt and raising questions about the sustainability of the holiday retail season. However, there are indications that the Federal Reserve may soon reverse its policy of raising interest rates, as suggested in a forecast released after the recent Fed meeting.

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