With the last quarter of the year (Q4) making up for the vast majority of consumer sales, we thought it would be a perfect opportunity to speak with economics expert Monica Haynes, director of the Bureau of Business and Economic Research (BBER) and adjunct professor of economics at the University of Minnesota Duluth (UMD), to learn more about what consumer buying power, spending, and inflation look like this year.
Q: What is the outlook for this holiday shopping season?
A: U.S. shoppers are feeling more optimistic this year and plan to increase holiday spending by 8% over last year, according to the 2024 Deloitte holiday retail survey. Factors driving this trend include increased economic confidence, higher prices, and boosted spending among middle-income households ($100K - $199K). The survey also reveals a shift in preferences, with shoppers prioritizing experiences over traditional gifts. At the same time, a majority are still looking for cost-saving strategies, such as choosing affordable brands and seeking promotions.
Q: How has buying power changed for the average U.S. shopper since this time last year?
A: Shoppers may be relieved that, although inflation rates have been high in recent years, inflation has recently returned to pre-pandemic levels. As of September 2024, the Consumer Price Index (CPI)—the most widely used measure of inflation—rose just 2.4% over the past 12 months, the smallest increase since February 2021. Even better, average weekly earnings grew by 3.4% over the same period, outpacing inflation and resulting in a 0.9% increase in real buying power for the average consumer. This suggests that adjusted for inflation, shoppers have more purchasing power this holiday season than they did last year.
Q: How have the last few years of high inflation impacted consumer spending?
A: Although buying power has improved over the past year, consumers still feel the lingering effects of high inflation. Since February 2020, consumer prices have risen by 21.4%, well above the historic average for a four-year period. Low-income households, in particular, tend to experience higher inflation than high-income households. These perceptions of decreased buying power could impact shopping habits this holiday season. In a recent survey, nearly two-thirds of U.S. consumers said inflation and the cost of living would impact their holiday spending, with 24% indicating they may cut back on gifting if prices rise further.
Q: What gifts are the most and least affordable in 2024?
A: The CPI tracks prices across hundreds of consumer categories, including food, housing, apparel, and more. In 2024, items like apparel (+2.6%), photography equipment (+10.1%), sports tickets (+15.1%), and jewelry (+6.5%) have all gone up in price compared to last year. However, many popular gift items have become more affordable. Prices for sporting goods (-2.5%), computers and electronics (-5.7%), and toys and games (-6.3%) have decreased, offering budget-conscious shoppers affordable options this season.
Q: What are some recommendations you have for shoppers this season?
A: Regardless of the economic state locally, regionally, nationally, or globally, it’s important to remember to work within your budget. We all have different factors that go into our decision-making, but spending within your means and your budget is important. According to the Federal Reserve Bank of New York, credit card balances among U.S. consumers have increased 5.8% above the level a year ago and are at historically high levels. Rather than borrowing to make your holiday purchases, I recommend making a budget for your discretionary spending for this part of the year, make a plan early for the items you’d like to purchase, and watch for opportunities to get those items at a discount when sales come around.
About Monica Haynes
Monica Haynes is the director of the Bureau of Business and Economic Research, which collects, analyzes, and disseminates information regarding the economy of Duluth, Northeast Minnesota, the State of Minnesota, and Northwest Wisconsin. Haynes’s expertise includes regional economics, energy, tourism, local industry, and economic impacts. She also serves as an adjunct professor of economics in the Labovitz School of Business and Economics at the University of Minnesota Duluth.
Contact
Monica Haynes
Director of the Bureau of Business and Economic Research
Adjunct professor of economics in the Labovitz School of Business and Economics
University of Minnesota Duluth
[email protected] | 218-726-7895