Holiday season business insights: Bright outlook for spending

Robust wage growth over the past two years, coupled with improved price stability, has positioned American consumers advantageously for the holiday season. This favorable situation is likely to stimulate significant holiday spending as shoppers take advantage of savings opportunities throughout this period.

Spending expectations

Last year, consumer sentiment was on the decline as they faced high gasoline prices and rising interest rates. Lower-income households faced additional challenges as they depleted their remaining excess savings. However, as we enter this holiday season, the mood is far more positive. The University of Michigan Consumer Sentiment Index revealed that future consumer expectations of the economy have risen to 78.5 in November from 74.1 just a month earlier. While some concerns about a cooling labor market linger, the overall outlook among Americans is increasingly optimistic.

That optimism is rooted in the spending plans of consumers for the remainder of the year.

According to a Gallup poll for holiday spending this year, 38% of participants expect to spend $1,000 or more on gifts this season, up from 35% last year. Additionally, as noted in the first release of our holiday blog series, the National Retail Federation projects that retail sales during November and December will increase between 2.5% and 3.5% compared to last year.

Strategic promotions and discounts play a key role

Wage growth continued to demonstrate strength to start the final quarter of the year with 4% year-over-year growth, according to the Bureau of Labor Statistics. Further, the progress made in the Federal Reserve’s battle against inflation is also yielding positive results with real hourly wages growing at 1.4% year-over-year in October. While the economy added only 12,000 jobs in October, there are underlying anomalies including two major hurricanes and Boeing’s labor strike that could ultimately deem this to be a one-time shock. We continue to have a historically low unemployment rate and initial jobless claims fell to 217,000 in the second week of November, below the pre-pandemic average and an indication of strong worker retention.

As households gear up for the holiday season, many consumers are focusing on bargains. Major retailers, in turn, are exerting pressure on suppliers to lower prices. Moreover, the rising demand for convenient shopping experiences is prompting consumers to explore more ways to shop from home, underscoring the significance of omnichannel options.

The Mastercard Economics Institute anticipates a 7.1% increase in online retail spending (excluding automotive sales) this holiday season compared to last year, reflecting both consumer resilience and the evolving digital retail landscape. These trends—emphasizing promotional activities and understanding consumer shopping preferences—can be analyzed across different generational segments.

According to Simon-Kucher’s 2024 Holiday Shopping Report, Gen Z shoppers are set to lead the search for deals and promotions this season with 64% of respondents indicating they will actively participate in Black Friday deals. In contrast, Baby Boomers show the lowest participation rate among the four generations surveyed (Gen Z, millennial, Gen X, and Baby Boomers), at 52%.

Experian’s 2024 holiday shopping survey reveals that Gen Z and millennial shoppers are increasingly embracing digital platforms, not only for shopping but also for researching products of interest. The survey indicates that these younger demographics exhibit the highest engagement rates with digital channels, such as reading online reviews, watching product reviews on YouTube, and seeking recommendations on social media. This trend highlights the critical impact a strong digital presence can have on attracting younger consumers.

The takeaway

The holiday season is set to be defined by consumer optimism and evolving shopping behaviors. As shoppers increasingly seek value and convenience, retailers have an opportunity to connect with their audiences through targeted promotions and enhanced digital experiences.

This post is the second in our series on holiday season business insights for consumer products companies. Look for our next post and check out additional insights.