The holiday season is upon us, but the festive cheer might be dampened by economic concerns. A recent survey reveals a concerning trend: Are consumers losing faith in the economy?
With the release of the U.S. consumer price inflation report looming, gold prices took a slight dip on Wednesday, indicating a cautious market. But the real story lies in the expectations of U.S. consumers themselves.
Here's the eye-opener: A Deloitte survey shows that as the holiday shopping frenzy nears, a staggering 57% of consumers anticipate a weaker economy in the coming year. This pessimism is a stark contrast to previous years, with only 30% expecting a downturn before the 2024 holiday season and 54% in 2008, during the Great Recession.
And this is where it gets intriguing: The survey marks the bleakest economic outlook in Deloitte's records since 1997. But why such a drastic shift in sentiment?
The answer might lie in the rising prices. A whopping 77% of those surveyed predict higher prices for holiday items, a significant jump from 69% last year. This is the first holiday season following President Donald Trump's tariff hikes on various imports, which could be a contributing factor.
"The U.S. consumer has been resilient, but this outlook hints at a breaking point," says Brian McCarthy, Deloitte's retail strategy leader. This sentiment is reflected in consumers' spending plans, with an average budget of $1,595, 10% less than the previous year, as they prepare for potential price hikes.
The spending cut phenomenon: Across all income groups and generations, consumers are tightening their belts. Gen Z, in particular, stands out with a 34% planned decrease in holiday spending compared to last year. Millennials also plan to spend 13% less, while Gen X and Baby Boomers expect more modest reductions.
But why the disparity? McCarthy suggests that Gen Z's reduced spending could be linked to their career stage, with economic uncertainties weighing heavily on their minds. They're navigating income and job market concerns, making them more cautious with their spending.
And here's the part most people miss: Deloitte's Mike Daher adds that Gen Z is also facing higher housing costs and everyday expenses, further squeezing their budgets.
Retailers, take note! These findings serve as a warning during the critical holiday sales period. While consumers still plan to celebrate and give gifts, they're increasingly value-conscious.
Holiday spending is projected to rise, but at a slower pace than previous years. Consulting firms Bain & Co. and Adobe Analytics both forecast more modest growth in holiday spending, both online and in-store.
The Gen Z factor: Interestingly, PwC's survey echoes Deloitte's findings, showing Gen Z consumers planning to spend 23% less during the holidays. Overall, consumers expect to spend 5% less on gifts, travel, and entertainment, a trend that retailers can't afford to ignore.
As the holiday season unfolds, value-seeking emerges as a prominent theme. Deloitte's survey highlights that seven in 10 consumers across income groups are actively hunting for deals, whether it's opting for store brands, cooking at home, or even buying used cars.
So, what does this mean for the holiday season? Consumers will likely prioritize essential gifts and experiences, cutting back on non-gift expenses like hosting and decor. It's a strategic approach to navigate economic uncertainties, and it's sure to spark conversations about the state of the economy and the resilience of the U.S. consumer.
