(The Hill) – If the Christmas tree seems taller this year, the reason might be the smaller pile of gifts underneath.
Retail analysts expect Americans to spend roughly the same amount on holiday gifts this year as they did last. Yet, because of inflation, money will buy fewer gifts. Seven presents less, to be exact.
The average consumer plans to buy nine gifts during the 2022 holiday season, up from 16 in 2021, according to a closely watched holiday retail survey from accounting giant Deloitte.
These gifts will cost an average of $507 and account for about a third of the $1,455 the average consumer expects to spend during the holiday season, a table that also factors in decorations, furniture, dinners and movies.
Other holiday spending forecasts and polls have come to less Grinch-like conclusions, but no one in the consumer industry is expecting a Christmas for the ages.
A November survey from Gallup found that the average holiday shopper is gearing up to spend $867 on gifts this year, up from $886 last year. Holiday budgets have tightened as Christmas approaches, Gallup found, a reflection of lingering inflation and dwindling consumer savings.
An October survey by the Conference Board think tank put average spending on gifts at $613 this year, up from $648 last year.
All told, Santa will be carrying a lighter bag down the chimney this year.
“You have this huge proportion of people who say they’re in worse financial shape, but they’re still going to make it happen for their families,” said Lupine Skelly, director of the Consumer Industry Center at Deloitte Services. LP.
Holiday shopping forecasters start early in the season, to keep pace with holiday shoppers. A September survey by consumer finance company Bankrate found that half of holiday shoppers plan to start shopping before Halloween. Online giant Amazon responded to expected demand with a special “Prime Day” in October. Other retailers have followed suit.
“If your heating costs are higher and you pay more for gas, why not start getting freebies in October and spread them out more?” Skelly said.
The traditional Christmas shopping season begins after Thanksgiving. People start spreading their purchases over more paychecks earlier and patrolling for discounts. They also worry about the supply chain, the consumer pipeline that has broken down for long stretches of the COVID-19 pandemic, even as warehouses have largely filled.
Most of the time, however, consumers worry about inflation. Rising consumer prices “is the elephant in the room,” said Ted Rossman, senior industry analyst at Bankrate. Inflation hit 9% last summer, a generational high. It has since fallen to 7%, but consumer prices continue to rise faster than wages.
“People are spending more,” Rossman said. “They don’t necessarily get more.”
Wells Fargo forecasts a 6% increase in holiday sales in November and December, a figure that “says more about prices than about rising holiday spending,” the financial services firm said in a report titled 2022 Holiday Sales: The Last Hurray.
The title reflects the firm’s gloomy forecasts for 2023.
“Essentially, this is the last big enough holiday season before our ultimate expectation that the economy will fall into recession next year,” said Wells Fargo economist Shannon Seery.
According to the Wells Fargo report, the past two years have seen strong increases in holiday spending, a boost from federal stimulus payments and a healthy economy.
However, consumer confidence has plummeted this year due to, among other things, inflation, rising interest rates and the resulting tight housing market.
On the plus side, “people still feel pretty decent job security,” Seery said. “I think the fact that they’re not worried about their work situation yet is why they keep spending.”
The key word in his analysis is “again”. Wells Fargo predicts a recession in the second half of 2023.
“Everyone in my field is talking about recession, talking about recession, and the consumer and the household aren’t affected yet,” Seery said.
“You will eventually start to see layoffs. And that’s where it starts to bite the consumer.
Most Christmas shoppers factor inflation, or even recession, into their budget. Surveys by Deloitte, Forbes and others have revealed that consumers plan to seek out gifts at lower prices, exchange them with fewer people and even shop at resale stores.
Vacation planners are also buying fewer decorations.
“If you remember, during the pandemic people were sick at home,” Skelly said. “They were decorating like crazy and buying furniture. It is therefore an area that is easy to reduce.
But if the holiday spirit seems a bit muted this year, inflation might not be entirely to blame. The annual Christmas spending spree has faded in recent years as a retail phenomenon.
Bloomberg columnist Justin Fox analyzed census figures and found that Americans are spending less of their annual retail budget on Christmas now than 20 or 30 years ago. December’s share of all retail spending fell to 11.4% in 2021, the lowest rate in at least 30 years.
“The theory seems to be that people buy more throughout the year,” Rossman said. “They don’t do it as much on holidays.”
Economists worry about the fundamental inefficiency of the Christmas gift: in most cases, the giver can only guess whether a gift is something the recipient wants or will one day use.
This year, with a tight budget, buyers are not kidding. Deloitte’s survey found that consumers expect to spend an average of $252 on gift cards this year, up from $235 last year. With a gift card, the recipient chooses the gift. In all other major retail categories, shoppers expect to spend less.
A Miami couple told the Wall Street Journal that they asked their children to choose “one really good gift” each, rather than buying multiple gifts from a list or on a hunch. Parents drive kids to malls and ask them to specify exactly what they want.
Many families will go into debt to finance Christmas gifts. Bankrate’s holiday survey found that around half of shoppers plan to charge at least some purchases to credit cards, and some respondents admitted they will need more than a month to pay them off.
“The silver lining is that a lot of people have saved more over the past two years,” Rossman said.
The stock of national savings peaked at over $2 trillion in 2021. Inflation, however, has brought it down to around $1.5 trillion, and economists predict that even this massive sum won’t last until November. 2023.
People are saving less now than a year or two ago, due to rising inflation. The national savings rate fell to 2.3% in October, from 14% in October 2020.
Meanwhile, credit card debt is mounting and the annual vacation frenzy will undoubtedly push the bill higher.
“Unfortunately,” Rossman said, “I feel like January’s debt hangover could be significant.”