Record spendings on Christmas despite inflation and recession warnings in 2023

This is the season of gifts, and the US National Retail Federation expects retail sales to grow by 6 to 8 percent over last year’s record-setting $899 billion. On the other hand, Australians spent $50.4 billion this Christmas, which indicates that the rising inflation and interest rates are yet to weaken the increasing demand from consumers to curb inflation anytime soon.

While it can be argued that the increasing prices have been the reason for increasing numbers in sales, data shows that the Grinch is not stealing this Christmas from people in 2022.

There was an 8.6% surge in spending between November and December from last year, totaling a whopping $840M, with 15.3% growth on the Boxing Day holiday on December 26 across Australian retail stores. This marks the most significant festive season spending on record, according to Paul Zahra, CEO of ARA, a retail sector worth $271.78B.

While the inflation has grown 7% in October, the central bank is trying to slow demand in order to curb inflation without pushing their economy into recession. On the other hand, the spending habits of consumers in the USA have witnessed change due to inflation. They seem to “spread out their budget” and “evaluate and shop at different stores,” according to Katie Thompson, the lead consultant at Kearney’s Consumer Institute.

Consumers tend to shop more at the start of the month and avoid early shopping to get better deals near holidays. Holiday sales in the US rose 7.6%, including cash and debit cards. Despite a change in spending habits due to rising prices from groceries to gasoline, Americans are still spending freely to get into the Christmas spirit.

This change in habit has pushed retail stores to pitch “holiday sales” earlier than usual near-holiday, from a store like Hollister clothing offering a $49 jacked to a $20 hoodie or $350 KitchenAid mixer provided at a decreased price of $100 at Bed Bath & Beyond.

Retailers have realized the headwinds from the past year catching up to consumers, making them more vigilant and conservative in their spending this holiday. While they used to rush to get to stores early to avoid their desired product running out are now “waiting for discounts before starting their holiday shopping,” Ellen Zentner, Chief US economist, wrote to clients last week.

The spending on expensive products like cars and furniture has seemed to be shifted to value alternatives instead. Smith & Wessons, an industry-leading manufacturer of shooting accessories since 1852, has been seen complaining at earnings announcement this month that consumers have been opting for cheaper alternatives and other value brands. They mentioned that the customers were choosing private-label items and shopping closer to payday.

In an effort to control inflation, Fed has raised the interest rates from near zero in March to 4.5% by year’s end. Jerome Powell mentioned that he isn’t ready to stop the increases just yet. The strong labor market seems to be the primary reason for nearly uninterrupted consumer demand.

Wages for the lowest earners have gone up significantly, and the wages in the US have gone up more in the past three years than past 20 years which helped in consumer spending throughout the US regardless of inflation.

Fed has hinted interest rates to get higher by 5 or 5.25% if the demand stays the same, which might push the economy into an early recession. The increase in interest rates will discourage investors, resulting in a higher unemployment rate, projected to be 4.6% in 2023 by Fed, and a weakening labor market. Simply put by Megan Greene, chief global economist at Kroll, “The narrative that (companies) will just whittle down job openings and the labor market won’t deteriorate significantly is a nice theory that doesn’t work so well in practice.”

Umar Ali
As editor in chief, I am always on the road, searching for hidden gems, undiscovered waterfalls, enticing hikes to explore, underrated delis, and more. Crafting compelling content that captures the true essence of each place is my passion. With years of experience in travel journalism, I strive to provide unbiased and factual content based on my real-life experiences. When I'm not out exploring, you can find me delving into local markets and devouring new foods, immersing myself in the cultures and communities that make each destination unique. It might sound like a tough job, but I love it!

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